Connecting the next 5 billion users: Emerging markets and the need for new business models

[With so much excitement about smartphone growth, we often forget that the biggest opportunity still lies ahead, in connecting the next 5 billion smartphone users to Internet and apps. Guest author Tom Christian Gotschalksen talks about the idiosyncrasies of emerging markets, and the business model innovations that are needed to close the smartphone gap]

Business model innovations for connecting the next 5B users

Smartphone growth has taken the wireless market by storm, having exceeded the one billion mark back in October. The US and western European markets for smartphones are about to saturate, and with those also the related industries of apps, content and mobile Internet connectivity.

Now US carriers are looking for growth outside of US, and Internet heavyweights like Twitter, Google and Facebook are targeting emerging markets where the remaining five billion users are still to connect to apps and the Internet.

In Asia, Africa and Latin America there is a wave of new, aspiring digital natives. They are enabled by $50 smartphones, and the burgeoning second hand smartphone markets, creating a huge demand for Internet services, apps, games, and Internet connectivity.

But there are two important challenges in connecting the next 5 billion smartphone users to the Internet and apps. It’s the business models behind data and handset subsidies, which are in dire need of innovation. Continue reading Connecting the next 5 billion users: Emerging markets and the need for new business models

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

[Report] The Netphone: behind the first WAC phone

[The Netphone is a bold attempt by Smart Communications – one of the top 20 MNOs globally – to bring telco services to the mass market But will the Netphone’s blend of WAC and Android succeed?  Research Director Andreas Constantinou goes behind the scenes into the Netphone project to find out, as part of our latest case study, sponsored by Red Bend Software – click here for a free download]

VisionMobile-The Netphone: behind the first WAC phone

Smart Communications: sophisticated services in an unsophisticated market

Smart Communications – the telco behind the first WAC phone – has over 50% market share in the Philippines with 46M wireless subscriptions, which puts them within the top-20 operators globally.

Smart has a record of service innovation that is akin to what operators in North America and Europe have achieved in more developed markets. Smart has one of the widest service portfolios among global mobile operators, including mobile payments, mobile banking, money transfer, mobile streaming TV, maps, push email and propositions for niche segments (e.g. MomsClub). Data services currently make up just over 50% of Smart revenues, as of Q1 2011, with the majority coming from the one billion SMS texts being sent each day. Smart Money, a service that allows users to pay for goods by transferring money from their bank account, was launched in 2001, and counts more than 8.5 million customers.

However, like many operators in developing economies, Smart is in a low-ARPU, pre-paid market. Some 99% of Smart subscriptions are pre-paid, with the blended, pre-paid ARPU reported at just 169 pesos ($3.9 USD) in Q1 2011.

Faced with decreasing ARPU in a competitive market, Smart has embarked on a handset-led strategy to increase its revenues by bringing over-the-top services to the mass market of pre-paid customers.

An Introduction to Netphone: The first WAC phone

The Smart Netphone presents a new series of mobile phones and tablets developed by Smart, aimed at bringing smart devices and services to the mass market.

The first device – expected to launch in July, 2011 – is a rebranded, revamped ZTE Blade. This is the same handset that has been rebranded by Orange UK as the San Francisco and priced at 99 GBP (around $160) without contract, and not dissimilar to the Vodafone Smart handset by Huawei priced at 90 EUR (around $130).

Netphone

Although Smart has not announced pricing, we expect its Netphones to target image-conscious, affluent Filipinos willing to spend an estimated $120-$140.

The Netphone comes with a suite of widget-like applications on the phone’s home screen that provide access to Smart and partner services:

Balance Check for prepaid users, which comprise 99% of Smart’s subscription base

Unified Chat, allowing users to message their contacts with emoticons and video animations. Chat integrates with Yahoo Messenger and Facebook

Sender Pays Email, which follows the SMS cost paradigm, but adds richer emoticons and video expressions to the messages

Connected Address Book, which integrates the user’s address book with Gmail and Facebook contacts

Global Directory, which integrates local Yellow Pages, and lists all users who use the Netphone (subject to privacy settings)

Social radio, which lets users share an FM station with a friend and tune into it in parallel

Smart Money, a service that allows users to pay for goods directly from their bank account or credit card

Emergency app, which offers one button calling to a doctor or other contact that can be assigned by the user

Partner apps like Jollibee (the number one fast-food chain in the Philippines), which allows users to browse the food menu, check out special offers, and order and pay for food delivery, directly from their phone.

Behind the scenes: the making of Netphone

The Netphone is not just an experiment for Smart. It represents a major effort for the operator, with a team 300 staff developing the phone series over the last 18 months, together with an array of tens of partners across six countries.

As a phone series, the Netphone hits several firsts: it’s the first phone to be based on WAC widget specifications (see next section); it’s the first fully customized handset from a mobile operator in an emerging economy; and, along with the Orange San Francisco and Vodafone Smart, it’s one of the first attempts to sell smartphones to prepaid users.

The Netphone has been designed with tangible revenue goals. Besides increasing own service revenues for Smart, the Netphone generates revenues by enabling partner transactions. For example, Smart gets a percentage of the revenue from every Jollibee fast food delivery transaction.

Smart lined up several partners to realize the Netphone concept, including ZTE and Huawei (handsets), Qualcomm (Android chipset platform), IBM, Oracle, Huawei (back-end integration) and Red Bend Software (software management over the air).

According to Smart, a key design decision has been using a software update technology that allows the Netphone platform and applications to be updated continually over the air (OTA).

With the OTA update technology, Smart can minimize the runtime age of the WAC-based platform runtime, ensuring that its Netphone applications run on the latest version of the platform. This addresses a common challenge faced by mobile application developers, who must port new applications to older runtimes. For example, about 25% of active Android handsets run on platform versions that are more than 18 months out of date, according to Google data released in May 2011. Similarly, 20% of existing Apple 3GS devices had not yet been upgraded to the latest platform version two months after the introduction of iOS4, according to app analytics firm Localytics.

Building on WAC technology

The Netphone series includes the first phones based on specifications defined by the Wholesale Applications Community (WAC). Launched in February 2010, WAC is a cross-operator initiative aiming to develop a cross-device platform and app store framework to drive operator services. Since its foundation, WAC has amassed 34 operator members and 39 other partners, bringing in a total of over $10 million in annual funding. Smart has a seat on the board of directors of WAC, alongside Vodafone, AT&T, China Mobile, NTT DoCoMo and other major telcos. The Netphone represents an important breakthrough for an industry initiative that has been criticized for its slow device rollout.

For Smart, WAC represents an industry-endorsed software platform on top of which its partners can build HTML-based applications (also known as widgets). Moreover, widgets are familiar to a broad base of web developers, who are accustomed to HTML or JavaScript development.

On top of the WAC widget specifications, Smart has layered its Looking Glass, a device and network technology umbrella that implements the array of Smart services on the Netphone.

On the device side, Looking Glass includes technology that WAC does not yet cover, such as over-the-air software updating (based on OMA DM SCOMO standard) and additional access into device capabilities like FM radio. On the network side, the Looking Glass technology umbrella provides access into Smart’s services, such as connected address book, advanced messaging, email integration, location-based services and Smart Money. Smart’s network APIs extend the GSMA One API specifications by adding XMPP for advanced messaging, billing & payment, and SIM-encrypted (DUKPT) transactions.

The agile telco: What other operators can learn from Smart

Many telcos have ventured into the world of handset software to deliver their own services and differentiated user experience. The most well-known examples are Vodafone (Live!, VFX, VSCL, 360), Orange, Verizon and, of course, DoCoMo. Smart also has had a tradition of developing services in-house, including Smart Money and its own airtime pre-loading solution.

Yet, Smart has taken a different approach from most operators. That approach offers three important lessons for the operator community.

Short tail. First, rather than deploying own-brand services exclusively, the operator has focused squarely on business partners with established consumer brands. It has allowed brands to deliver local consumer differentiation, and to share revenue on transactions. In so doing, it has provided brands with an additional channel to consumers.

Agile development. Second, the operator has used an agile development process. Rather than set specifications in stone at the beginning of the project, Smart’s featured Netphone applications have been iterating continually through a cycle of development, testing and user feedback. Moreover, rather than use the traditional RFI/RFQ ‘waterfall’ software procurement process, Smart has established joint operational and R&D teams with its many suppliers for Netphone, and has adapted the software specifications during the course of the Netphone project.

The project has already cycled through four iterations, averaging once every 3 months. Another iteration is planned before launch. “An RFP or waterfall development process clearly wouldn’t work here,” comments Ibasco, who has been a key proponent of the Netphone project since its inception.

Ongoing updates. Third, the over-the-air software update mechanism allows Smart to deploy new features and updates throughout the lifetime of the device. It also allows Smart to extend its addressable market for new services to the entire base of deployed Netphones, not just the most recent line-up of handsets shipped.

The future of the Netphone

Initial rollout goals are modest, with Smart planning to sell 200,000 Netphones by the end of 2011. Assuming Smart can hit sub-$100 price points in early 2012, it has a chance to rapidly ramp up these volumes, and address a substantial portion of its 46M subscriptions base.

For now, the operator community is looking at the Smart initiative with anticipation; Netphone marks the latest telco attempt at innovating in the era of software, by building on both the telco (WAC) and software (Android) worlds.

Read the full case study and tell us what you think.

– Andreas

BlackBerry: A Dual Personality Disorder?

[RIM is torn between two very different market segments: Enterprise mobile messaging and text-addicted consumers. Amidst troubling signs for RIM’s future, the company needs to reconcile its dual personality. VisionMobile Research Partner Michael Vakulenko explains why RIM needs to create separate product experiences for business users and consumers and analyses the possibilities.]

BlackBerry: A dual personality disorder?

It’s hardly news today that RIM is at the verge of losing its smartphone leadership. Analysts dog-pile on the company downgrading the stock amidst declining smartphone market shareincreasing subscriber acquisition costs, increasing competition from Apple and a slew of Android handsets from tens of OEMs.

[poll id=7]

A lot has changed since RIM earned its success on providing mobile push-email to enterprises. Today RIM serves two distinct market segments: enterprise users and text-addicted consumers.

Contrary to common perception, enterprise market is no longer RIM’s largest market. Back in June 2009 the company reported in that 80% of the growth came from consumers. Today in fact more than half of BlackBerry active users are consumers. Who are these people?

BlackBerry was conceived as a messaging device with optimized user interface and physical keyboard being its primary advantages. These advantages found warm reception in the hands of text-addicted youth, who according to Nielsen are sending on average 3,339 texts (SMS) a month in the US.

SMS is not the only way to socialize using BlackBerry. BlackBerry Messenger (BBM) is a proprietary instant messaging application running on BlackBerry smartphones. BBM uses BlackBerry PIN programed in the device to identify BBM users. The application supports avatars, groups, photo sharing, voice notes and reading the PIN using bar code. Because of the device-specific BlackBerry PIN, BBM has strong viral effect. A person must have a BlackBerry device to participate in the social network formed around BBM. As of May 2010, BBM had about 22.5 million users, representing close to 50% penetration across a total subscription base of 46 million subscribers.

In countries like Saudi Arabia and the United Arab Emirates, about 90% of BlackBerry owners use the BBM service – a figure which concerned government authorities, which weren’t able to intercept BBM communications. In the UK and France BBM is one of the main drivers for BlackBerry device sales. In Netherlands, Venezuela, Indonesia and Thailand users put the bar code of their BlackBerry PIN on their business cards, t-shirts or even swimwear.

A Personality Dilemma
Consumer success is great news for RIM. It is however increasingly difficult for RIM to maneuver between its established high-margin enterprise market, and the less familiar lower-margin consumer market. RIM will risk loosing both markets to competition, if it continues to serve them with the same brand and product portfolio. Enterprise users have very different and often conflicting expectations compared to the enthusiasts of message-based socializing:

– Cost is important factor for many text-addicts. Many of them are young or live in developing counties. A BlackBerry price tag in the pre-paid range has significant allure for this segment. For example, Carphone Warehouse sells BlackBerry Curve 8520 for £129.95 (more than $200) with a Pay-as-You-Go plan. On the enterprise side, the last thing that a high-flying executive wants is to use a smartphone associated with a cheapy, “smartphone-for-the-rest-of-us” brand (for example see this T-Mobile commercial)

– Many text-addicts buy BlackBerry because they don’t like touch screen. If they would, many of them would be buying iPhone or Android phones. Instead they prefer a device with physical keyboard and optimized for one-handed operation. On the enterprise side, touch screen is important to compete against high-end iPhone, iPad and Android devices.

– Text-addicts need texting, instant messaging and integration with popular social networks.  Enterprise users need emphasis on email, PDA functions, synchronization, MS Office compatibility and device management.

– Security is a big issue in the enterprise, while many consumers don’t know how to spell it – as demonstrated by the wide adoption of Facebook, despite privacy issues.

Is RIM putting its R&D cycles and money in the right places? No – RIM seems to be gravitating towards the convenient and familiar enterprise segment playing catchup with Apple. RIM acquired DataWiz, maker of MS Office compatibility software, in September 2010; Introduced high-end touch screen model, BlackBerry Torch, in August 2010; and recently announced PlayBook tablet squarely aimed at the enterprise market.
There is very little in the recent RIM product announcements to bolster confidence in the company’s historical smartphone leadership. New developments are mostly about catching up with Apple, without introducing anything significantly new and relevant for RIM’s devoted user base.

A Gordian Solution
Instead of chasing Apple, RIM shall build on its advantages and focus on unique needs of its devoted user base. The first step would be separating its product portfolio into enterprise and consumer product lines. This will free consumer products of unnecessary burden and complexity, while keeping enterprise products focused on productivity and security.

The second step would be enhancing the BlackBerry Product Experience (PX) by building up the social features of BBM on the consumer side and beefing up on the proven push-infrastructure, security and team collaboration features on the enterprise side.
Today, competition in the mobile industry shapes around Experience Ecosystems comprising of connected devices, applications, services and communities. New Product Experiences based on connected services should be the focus for RIM’s innovation. Here’s how RIM could create service-based product differentiation for future versions of BlackBerry devices.

Location-based games have proved to be very popular, especially with RIM’s consumer demographics. Foursquare, a company developing a smartphone check-in service, reached a valuation of $125M having just 1.8 Million users and 27 Employees.

Compare this with RIM who has over 20 Million users in their BBM network. Why can’t RIM build its own checkin service on top of BBM, exclusive to BlackBerry devices? Adding location context to BBM messaging will greatly enhance social interaction of the platform’s users. Moreover, check-in apps show strong advertising potential. With 20 Million BBM users RIM could create new revenue streams for itself and mobile operators.

Even compulsive texters use the phone once in a while, but for them voice call is often a part of a longer conversation taking place using multiple means of communication. RIM could integrate voice calling with BBM making voice part of a wider social context. Users would enjoy better communication experience, while operators would be happy to see users consuming more voice minutes.

Business users use their devices in rather different context from consumers. Many of them are mobile and depend on collaborating with their colleagues remotely. BlackBerry-based team collaboration could become a killer app and differentiator for such users. Real-time activity updates, multiparty discussions, wikis, collaborative task lists have all enjoyed success on the Internet as shown by Teambox, Yammer, 37 signals and long list of other Internet collaboration startups. Why not integrate information sharing tools and video calling into the operating system making BlackBerry indispensable not only for email, but for team collaboration?

The Clock is Ticking
In order to keep its position in the smartphone market RIM needs to create separate Product Experiences for consumer and business users, and focus on innovation in connected services.

RIM doesn’t have much time for experiments with the PlayBook tablet, or on internal debates about replacing the vintage BlackBerry OS with the more capable QNX OS. The mobile market continues to evolve rapidly: Apple is making steady progress in improving enterprise readiness of its products, prompting mass defections of enterprise users to more appealing iPhone and iPad devices. At the same time, Android is spreading into low-cost smartphones threatening to displace BBM with Internet-based alternatives.

What do you think RIM should do to keep its smartphone leadership position?

– Michael

[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 experience across many aspects of mobile technologies including handset software, mobile services, network infrastructure and wireless system engineering. He can be reached at michael [/at/] visionmobile.com]

Waking the Dragon: The Rise of Android in China

[Android is leading the smartphone revolution in Western Markets. But what about China, the country with the biggest mobile user base? Guest author Hong Wu analyses the state of Android in China – from chipset vendors to software developers – and how the dragon is waking up.]
The article is also available in Chinese.

The Rise of Android in China

HuaQiang Road, ShenZhen, GuangDong, China, an ordinary weekend.

At 10 o’clock in the morning, there are few pedestrians around. Sanitation workers are cleaning up hundreds of deserted mobile phone packages and plastic bags near mobile phone supermarkets, along with bundles upon bundles of mobile phone manuals, and even a few dozens of broken CDs, with labels showing clearly the words “HTC” or “SonyEricsson”.

Clerks in more than a dozen bank branches on HuaQiang Road and ZhenHua Road are busy refilling cash into their ATMs. In the next 5 hours or so, those bank clerks and ATMs will be responsible for hundreds of millions of Yuan in cash transactions. Yes, cash and stock products are the rules of transaction here. This commercial business district, often called as “HuaQiangBei” (or north of HuaQiang), is the strike-it-rich spot for many poor grassroots classes in ShenZhen. This neighbourhood has become the global hub for consumer electronics.

Android has recently become the hot topic within HuaQiangBei district. Sales figures of Android phones have been climbing on a daily basis at YuanWang Digital City. Most of these Android phones use Qualcomm’s chipset, while only a few of them run a chipset that’s made in China.

Nearby, at MingTong Digital City, one can find heaps of ShanZhai (山寨) mobile phones on sale (ShanZhai refers to Chinese imitation and pirated brands and goods, particularly electronics). There only a few Android phone models on display, but customers keep coming back asking for more. In the meantime, the software engine that powers ShanZhai smartphones has shifted from Windows Mobile to Android, and most of they are using chipsets that are made in China.

A 15-minute drive from HuaQiangBei business district, at CheGongMiao business district, are the headquarters of dozens of mobile phone design companies, who are in the midst of the mobile food chain. On a daily basis, engineers here crank out some very exotic prototype phones using MediaTek’s chipset solutions. Since 2009 when Android caught fire, sales guys from MediaTek, HiSilicon, Rockchip, Actions-Semi, and other chipset vendors are arriving day after day, hoping to sell their solutions and get a piece of the pie from the Android revolution.

Once an Android-based white label design is out, the phones will be manufactured in factories at Bao’An ShenZhen and LongGang districts. The plastics are then stamped with the right retail brand stickers, and put on the shelf at the consumer electronics crossroads that is HuaQiangBei.

The MediaTek powerhouse

MediaTek (MTK) sells between 300 to 400 million chipsets a year for 2G handsets, and is the predominant force behind low cost phones in China. MTK’s foray into the smartphone market began in February 2009 when they released the MT6516 design, at that time based on Windows Mobile 6.5 OS. MT6516 is a dual core solution; the application processor is an ARM 9 running at 416MHz, while the baseband processor is an ARM 7, running at 280MHz, supporting 2G (GSM/EDGE). This solution suffers somewhat in terms of performance when compared to the Qualcomm’s MSM7200, but its BOM is lower.

One step up, the MT6516 deluxe version includes a 2.8” QVGA resistive touch screen, 2MP camera, GPS, WiFi, and Bluetooth silicon, with a quoted wholesale price of $90. The basic MT6516 version with no touch screen or camera is quoted at $60. Note that approximately $10 of that quote goes towards the Windows Mobile license fee. In other words, expect prices to go down considerable with an Android design.

Despite its market mussle, MediaTek didn’t anticipate that the Android revolution would arrive so soon. For example, MediaTek didn’t join OHA until 2010 while the first MTK Android handsets are just making their first steps into the Chinese market (there is a rumour that a leading Android OEM had earlier veto’ed MTK’s entry into the OHA to avoid price competition).

TongXinDa in ShenZhen has been the first ODM to release an Android phone based on MTK’s MT6516 solution, the “TongXinDa TOPS-A1”. The phone boasts unique features such as dual SIM cards (both GSM and CDMA, and both at active states), a dual boot system (Windows Mobile 6.5 and Android 1.6 both stored in ROM) with 256MB RAM and ROM, and a 400×240 screen resolution. The phone ad is shown below (note that the HTC logo is a fake).

But these are just the first steps of Android as it awakes the Chinese dragon. The full MTK Android 2.1 solution won’t be out in mass production until the end of 2010.

More competition at low-cost Android phones

Rockchip, a design vendor based in FuZhou, China, showed its RK28 solution at HongKong Electronics Show in 2010, focusing on Android tablets and smartphones.

Rockchip is a homegrown chipset design company which conquered the market of MP3 portable media players with its RK26 and RK27 series. In 2009 Rockchip announced its foray into smartphone business with the RK2808 Android solution, but was not widely adopted due to chip heating problems and performance issues.

In a second effort at the smartphone market, Rockchip released its RK2816 solution in 2010, running on an ARM 9 application process at 600Mhz and an NXP baseband chip. The RK28 series is not as tightly integrated as MTK’s MT6516. MTK put both applications and baseband into one single chip, while RK28 used Infineon for their baseband. RK28 series’ advantage lies at its inheritance of multimedia technologies from Rockchip, with hardware decoding of 720p H.264 video.

Rockchip’s RK28 design has been taken up by Ramos (Blue Devil) to power an smartphone device under the model name W7. The device runs Android 1.5, sports a 4.8” 800×480 resistive touch screen, and is intended as competitor to iPod Touch, with a focus on video media playback features. BuBuGao is another OEM planning to deliver cheap smartphones using the RK28 solution.

In the tablet space, Actions-Semi has been designing a new chipset based on the mISP 74K kernel, running Android 2.1. Marketed under the EBOX moniker, the company aims to head-to-head competition with the iPad with support for H.264, MPEG-4, DivX and Xvid hardware decoding at up to 1080p resolution. Such specs are unheard of among current Android solutions.

Around five years ago, phones based on MTK chipset shook up Chinese cellphone market that was dominated by Nokia, Motorola, Samsung and other local brands like Bird, TCL and XiaXin. MTK enabled phones to be sold at very low prices while still boasting advanced features, including exotic ones like eight stereo speakers or 365 days of standby battery life.

Today, most local brands are gone, and the remaining few have reverted to using MTK chipsets for their phones. International OEM brands have to slash prices on their mid-end to low-end phones in order to compete in this fierce cellphone market. MTK’s entry into high end smartphones using Android may certainly repeat the history we witnessed five years ago. Android phones running FroYo selling for under $100? Maybe just a few months away.

Android Developers in high demand

With such a rapid growth of Android-related activities, Android developers are in hot demand today in China. A 2-year Android pro can command up to 20,000 Yuan (close to $3,000) per month; whereas a 10-year J2EE veteran makes probably the same salary if not less. Companies, big and small, are busy scouting for Android talent, but challenged due to the small pool of qualified engineers.

At ifanr.com we recently conducted a survey, with the help of the China Android Dev group (over 1,400 members, 18,000 messages, the largest and most active discussion group for Chinese Android developers) to capture the demographics of Android developers in China. Our survey received over 500 valid responses with some revealing insights into the state of Android developers in China:

In terms of demographics, over 80% of respondents are between 20 to 30 years old, while another 10% is between 31 to 35 years. These are pretty young and dynamic groups of developers.

When asked about how many years of mobile development experience they have, close to 40% are just getting started. And another close to 50% of respondents are within 0-2 years of experience, which is to be expected, given that Android is a two-year-old platform.

In terms of their role in Android development, 37% of survey respondents are part time developers, while over 40% are professional developers. Only 10% are students while about 15% are still holding out to see how Android progresses.

It’s also worth pointing out that over 60% of respondents are individual developers, a.k.a. one-man teams, while over 90% work in teams made up of less than 50 developers. There are companies with more than 100 developers, mostly likely big telecoms like China Mobile, as well as handset manufacturers and design houses.

Given that we targeted Android developers, almost 80% of respondents have developed on Android. We also see healthy shares of iOS, J2ME, Windows Mobile, and Symbian. Based on current trends, we can foresee Android and iOS commanding larger market share going forward, while J2ME, Windows Mobile and Symbian share will shrink further.

Over 45% of respondents have not yet published apps on Google’s Android Market. This is mostly because Android Market and Google Checkout do not yet support Chinese regions. This is a well known issue; there is a large number of developers in China wanting to publish apps onto the Market who can’t; for example many of them have to set up an overseas bank account in order to register and pay for the Market registration fee. It’s a major hassle for individual developers, and where hopefully Google has a mitigation to offer in the near future (PayPal integration perhaps?).

In terms of revenue models, about two thirds of paid apps are using ad banners, while the other one third are using pay-per-download according to the results of our survey. As for the types of ad networks used, Google AdSense comes out on top with nearly 50% of votes. AdMob comes in second with nearly 30% votes. Wooboo, Youmi, and Casee, ad networks from China, are also making strides here.

The level of satisfaction from app revenues is evenly distributed, with 20% of respondents saying they are not doing well and losing money, and 18% saying they are extremely satisfied and doing well or optimistic about the future (the rest 60% is for people who do not make money from apps).

In terms of go-to-market channels, Google’s Android Market tops with more than half of the share. China Mobile’s Mobile Market (MM) is also popular among developers. MOTO SHOP4APPS is surprisingly getting 5% (or 10% among the ones submitted).

Overall, Android has seen explosive growth in China. More and more developers are joining the ranks daily. However, due to the limitations of Android Market and Google Checkout in China, many developers are turning to alternative markets and payment gateways.

In the operator camp, China Mobile is making a big splash trying to woo developers onto its Android-variant, the OMS/OPhone platform. HTC and Motorola are also pushing their own app store agenda.

The Android ecosystem in China is still a sleeping dragon, but is waking up day by day. There will be more ad networks, more app stores, and more payment gateways coming out in the foreseeable future before consolidation moves in. Android in China is probably at its most exciting stage right now.

– Hong

[Hong Wu is a seasoned mobile app developer based in Silicon Valley, US. He’s currently building an awesome product that hopes will make TVs enjoyable again. He’s also a core member of ifanr.com, the leading new media blog site in China that focuses on mobile Internet industry, smartphones, gadgets, and exciting startups in China. You can contact Hong at lordhong /at/ gmail.com or follow @lordhong on Twitter.]

The recipe for a successful mobile strategy for your brand

[Most major companies have tried engaging their customers through their mobile phones, but not everyone has succeeded. Guest author Guillaume Arth talks mobile brand experience and identifies the steps towards developing a successful mobile strategy]

Creating the right mobile strategy for your brand

‘Get into their pockets and you’ll get into their minds’ could be the slogan soon underpinning any new marketing manifesto. Indeed, mobile commerce has become core to the strategy of mainstream brands as it empowers new forms of customer engagement.

Mega brands like eBay have taken strides in mobile as an extension of their online presence through mobile websites and applications. eBay’s  iPhone app has already been downloaded 11 million times. The online auction giant expects to make $1.5 billion from mobile this year compared to $600 million in 2009. Retailer brands like Best Buy use apps to offer specific promotions or gifts in the process learning a lot more about customers.

Interestingly, traditional media have been quicker to adopt a mobile strategy as many advertising budgets are moving online. Since this summer, the Wall Street Journal, The Times, and Wired magazine (to name a few) have all launched iPad apps signaling a shift in premium print media. Similarly, TV channels like MTV are also embracing interactive, social apps, either designed as companion apps or offline versions of TV content. As reported by Advertising Age recently, brands like MTV  “focus on two approaches to its iOS apps: first, co-viewing apps that capture the social-media chatter around TV and awards shows and second, apps for video on the go”.

Moreover, borrowing lessons from Foursquare and Gowalla new types of apps allow you to ‘check in’ to TV shows and movies. A good example of that is the TV chatter app, which enables users to do their own programming and interact with Twitter live streams and post their own.

However promising these developments might be we will have to wait another 12 to 18 months to see whether print and broadcast media can truly leverage on mobile.

Getting your brand experience right

Through their scale and prolonged web presence EBay and Best Buy have successfully faced the challenge of multi-channel integration as well as getting visibility and ‘placement’ of their mobile commerce apps on stores.  For these reasons they still remain exceptions. As a mobile gaming exec put it to me recently, ‘you have to be at least in the top 100 apps on iTunes if you want to make any kind of money. You have to market yourself in a way that can create actual retention, not just hype at the back of a free app’.

Indeed, some free apps may enjoy good download stats but those don’t necessarily translate into good reviews and recurring users as the Gucci app recently showed.

Some brand strategists argue that it is still ‘early days’ and that a ‘wait-n-see approach’ is more sensible; after all market penetration of higher-end devices like the iPhone and Android-based handsets is still only around 5% of devices sold worldwide in H1 2010. However this figure hides that we are in fact talking about high value, high ARPU customers with the biggest propensity to actually try out a branded mobile app. Additionally with more 150 million smartphones sold we have passed the point of only talking about early adopters. This is now a mass-market phenomenon, which has opened up new and more direct routes to consumers for brands.

So how should a brand go about developing a mobile strategy?

Before enlisting a highly paid musician to create a DJ-like app experience or hiring a top-notch programmer to start churning out software code, it is important to consider what factors make some apps successful and other mediocre:

Firstly, understanding users. A successful app will capture the imagination by being relevant, useful and delightful. Indeed users are prone to quickly veer off to something else in disappointment so understanding what makes them tick is important. After all your brand is trying to take a piece of someone’s busy schedule. Hence pilot first and then scale appropriately. One can draw lessons from successful games that offer a basic, yet addictive experience which is then enhanced with a bigger feature set at a 2nd stage. Then it becomes easier to convince existing users to come back and possibly pay a small premium (a good example of that is ‘Hungry Shark’ part 1 and 2 by Future games of London.)

Secondly, a deep understanding of mobile as a medium is essential. No matter how amazing your ideas may be, it is worth keeping in mind that mobile is a tactile, impulsive and intimate medium that doesn’t tolerate too much ‘fuzzing’:  basically users need ‘to get it’ in a matter of seconds and… it needs to work! Taking the brand’s website content and ‘over-specifying’ an app is likely to fail. One can think of the 2010 Roland Garros app whose flawed design, and overly complex feature set probably didn’t achieve much for the tennis brand. Here is a prime example of how a flawed approach to an app can possibly damage a great brand especially when competitors or peers (the other Grand Slam tournaments in this case) have done a much better job.

Based on good design guidelines, a mobile app should aim at creating a brand narrative that will work in the mobile context rather than throwing ill-conceived ‘marketing junk’ as one can often read in app reviews. App marketing can be a double-edged sword and because of its immediacy and interactivity, brands must have their ears on the ground, learn and react quickly ensuring negative feedback doesn’t spiral out of control.

Thirdly, having a longer-term app roadmap where the mobile brand extension evolves and engages with its customers. The mobile app roadmap should grow gradually and elegantly, adding features and customer engagement opportunities on the way. Brands can build more loyalty by letting their essence shine through the simplicity of its mobile incarnation.

Last but not least: pricing. One million free downloads equals to zero direct revenue and too many apps are free making it difficult to solicit direct revenues through branded apps. But revenue shouldn’t be the only goal of a brand-extension strategy; the main goal should be engagement. After all, who would be willing pay for ‘walking into a shop’? One shouldn’t repeat the same mistake as mobile operators portals have done with charging users for just browsing. Providing a ‘free-entry’ experience is an important consideration which can then be followed by a premium (paid-for) experience.

Sowing the seeds for deeper customer engagements

With mobile, brands can equip themselves with a powerful and interactive marketing platform that forms a key pillar of a ‘multi-touch’, digital media presence. The entry of brands into the mobile domain is being encouraged by four recent developments:

1. A new breed of mobile natives who have greater access, understanding and trust in the mobile medium as a more personal and less ‘mediated’ experience for shopping or entertainment

2. Devices evolve at a very fast pace.  Thanks to the widespread support of XHML/HTML, Java script and CSS, (More than 250m devices now feature the open-source WebKit browser engine, as seen in the 100 Million Club) and greater set of APIs, devices offer richer media experiences: audio, picture, video, social, messaging, location…and the list goes on.

3. The greater availability and affordability of cloud-based technology open source APIs, as well as packaging and rendering solutions for mobile websites, allow new entrants – like brands – in the market (‘BK Render’, a mobile rendering solution from french start-up Backelite is a good example there)

4. The accelerated development of mobile transactions from operator billing to bar coding, I-Tunes, Google checkout, PayPal, NFC and others.

‘Convergence marketing’ is the new frontier

At the core of the ‘new mobile economics’ brands and service providers are increasingly empowered to create new experiences and new business models. With the caveat that there is no current “write once, run anywhere”, I argue that brands are better positioned than ever to work around consumer and platform fragmentation through ‘convergent positioning and marketing’. Essentially rather than feeling daunted by technology, it is about looking at what the brand is trying to communicate and push a consistent message across to all users whatever digital medium they are using.

Users. Where are they? They are everywhere and ‘ubiquity’ is their destination.  The user journey starts with a phone in each pocket, device connectivity and grows to digital ecosystems spanning across tablet computers, laptops desktops, TVs and many more places tomorrow. This creates a connected environment of opportunities for brands to express and market themselves in new ways, with social apps and blogging leading the way. Costs and barriers to entry to digital are lowering and marketing and retailing of digital goods is becoming mainstream.

Further down this new crowded high street, Apple, Google, Samsung and to an extent LG and Sony are embroiled in the battle to conquer our living rooms with internet TV services, through VOD, apps and widgets.  At present, joint communications and Internet TV services are mostly ‘beta’ services on trial with operators including Verizon (US), Sonaecom (Portugal) or KT(South Korea). Orange recently signed a partnership with LG, where Orange provides billing and customer care while LG provides IPTV services.

There are also handset apps that act as a remote control – Free.fr in France for example (Free.fr app) – signaling that mobile might take over as the ultimate ‘EPG’ (electronic Programming guide). Currently 10-20% of IPTVs are connected to a broadband going up to 50% with higher broadband penetration. Samsung expects to sell 35 million TVs globally in 2010. In comparison, it took Microsoft 3 years to sell as many Xbox units. As TV remains the most popular consumer electronics device in the home this presents significant opportunities for any IP-based service or a brand looking to market itself through digital. With an installed base of millions it is only a matter of time before mobile app stores users are migrated to the big screen.

Apps and mobile services are good place to start for any brand but as we have discussed it is only the beginning. For instance, Nokia recently argued that ‘context devices, rather the apps, will be where the money is’.

With the digital switch over completed in most developed markets by 2012, ‘Convergent marketing campaigns’ will soon become a reality. Of course being successful will require adjustments and some juggling with technology but I believe that within 18 months, brands, service providers and advertisers will be at the intersection of a bigger phenomenon than the app stores as digital grows exponentially.

Now is the time for any brand to plan and leverage on those exciting developments and – through deeper customer engagement – turn new experiences into new revenue streams.

Guillaume.

[Guillaume Arth is a mobile media consultant based in London, UK. With more than 10 years of experience in this space, he currently specialises in service strategy, sales and marketing advising large and small organizations. You can contact Guillaume at: g /at/ cozmopolitanmedia.com or you can follow him on Twitter @cozmedia]

Palm: $1.2B Down the Shredder

[The acquisition by HP will not save Palm. Guest author Michael Valukenko explains why the sum of Palm and HP is close to zero]

As an old-time Palm user, I was always secretly hoping for resurgence of this familiar and trusted company. At a rational level however, I didn’t believe that the new Palm stands a chance in rapidly changing smartphone market. See my earlier analysis in Who can save Palm here at the VisionMobile blog.

HP’s acquisition makes Palm part of large and financially solid company, but doesn’t compensate for its other weaknesses. Smartphone competition today boils down to competition of service platforms with Apple and Google leading the way. Considering the realities of today’s smartphone market, there are very few real synergies between HP and Palm.

The three missing synergies

Today people don’t buy smartphones for their hardware, but for what they can do with them. This largely means software platform and services built around the phone. Both Apple and Google excel in this area, albeit using very different approaches.

Palm’s WebOS offers a slick UI and a promise of simplified app development by fully adopting the web paradigm. But it lacks a clear differentiation (a killer use case) and an ecosystem unlocking the device into hundreds or thousands different things people could do with it. Let’s face it: It wasn’t that WebOS devices didn’t sell well because Palm lacked marketing dollars. They didn’t sell because they weren’t good enough compared to competition. HP marketing money and distribution muscle won’t save the day.

Today’s leaders – iPhone, Blackberry and Android – all have clear differentiation: iPhone is all about entertainment and Internet and is backed by large iTunes user base. Blackberry sells mobile email and is backed by corporate IT adoption and a strong distribution network. Android seamlessly integrates with Google services promising free and open Internet. The vague notion of “HP Experience” looks pretty pale in comparison.

Critically important, app developers and Internet companies already have their hands full with iPhone, iPad, Blackberry, Android, not to mention the upcoming Windows Phone 7. What does HP have to offer in exchange for some mind-share? Any bright ideas?

Last, but definitely not least. Mobile operators/carriers take on the lion’s share of smartphone promotion and subsidy costs, hoping to attract new subscribers and increase ARPU of existing ones. What can HP/Palm offer to convince operators to take marketing and subsidy dollars from iPhone, Blackberry and Android, and put them into HP/Palm?  I don’t see much. Do you?

Clear differentiation, developer mindshare and operator subsidies  are all critical today for the success of a smartphone platform. All these were and remain Palm’s weaknesses regardless of its financial situation. HP does not complement Palm in any of these critical areas.

Chasing the Apple dream
A quick glance at HP earnings breakdown reveals HP as an electronics equipment company at its core. The company generates most of it revenues from selling printers, laptops, desktop PC and servers. Smartphone unit sales are catching up to laptop sales, while laptop margins are getting thinner and thinner. It is easy to see how tempting would it be for HP management to try to emulate Apple’s model of selling high-margin devices.

However Apple owes much of its success to its vertical integration, which allows blending hardware, software and services into iconic products. This vertical integration is ideally suited for breaking new grounds and creating new product categories. It is critical factor in Apple’s ability to create such products as Apple Lisa, iPod, iPhone and iPad.

As explained by Clayton Christensen in this seminal paper, vertical integration is an advantage in emerging product categories, where it helps to overcome technical challenges. Vertical integration however becomes a disadvantage in maturing markets, where flexibility, customization and modularity are of greater importance.

It is difficult to see HP successfully reproducing Apple’s model. The opportunity to be the first with iPhone-like product does no longer exist. 

Is this good news?
The deal doesn’t look particularly bright for HP shareholders. But may be in the broad scheme of things the deal is great news for many other people: Investment bankers will pocket multi-million dollar commissions, Palm’s investors and management will be spared from their misery, HP executives will boost their ego, business newspapers will sell some ads, and bloggers (including myself) will have something to write about.

How do you think the acquisition will shape up for Palm and HP?

– Michael

[Michael Vakulenko has been working in the mobile industry for over 16 years starting his career in wireless in Qualcomm. Throughout his career he gained broad experience in many aspects of mobile technologies including handset software, mobile services, network infrastructure and wireless system engineering. Today Michael consults to established companies, start-ups and operators. He can be reached at michaelv [/at/] WaveCompass.com]

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

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

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

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

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

 

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

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

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

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

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

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

– Richard

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

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

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