The mobile services landscape: Can OEMs compete with platform vendors?

[Growing competition and price pressures push handset makers to seek new ways to differentiate. This increasingly means services. VisionMobile Research Partner Michael Vakulenko compares service offerings of leading handset makers, explaining why OEMs will struggle to create meaningful differentiation through services.]

VisionMobile - The mobile services landscape

Remember the Motorola RAZR or the Nokia N95? Long gone are the days when handset hardware was fertile ground for innovation and differentiation. Convergence of device form-factors and equal access to advanced chipset technology pushes the handset market to the brink of deep commoditization.

Focus on smartphones can only provide short-term life support for deteriorating margins. Android opened the floodgates to low-cost assemblers to compete in the smartphone market. Aggressive new-comers, like ZTE, Huawei, Acer and Dell, along with a growing list of previously unknown handset manufacturers, push incumbents deeper and deeper into the commoditisation corner. Differentiation based on services increasingly looks like an attractive solution for many handset OEMs.

Services, services, services
Let’s look at how service offerings of leading handset OEMs stack up against each other. Nokia, Samsung, Apple, RIM, HTC, Motorola and Sony Ericsson (in no particular order) all have service ambitions and will be the subjects of the comparison.

State-of-the-art service offerings go far beyond much-hyped application stores. We ‘ll dig into the following service categories:

– Content retailing services: App stores, music, premium video and billing.
– Cloud services: Cloud-based contact book, cloud synchronization/backup, and device management (i.e. location tracking and remote lock).
– Communication services: Email services (e.g. gmail.com, me.com or nokia.com), instant messaging and video conferencing services
– Location-based services: Maps and navigation
– Advertising: Ownership of an ad network, display ads, multimedia ads and location-based ads.

Since many of the OEMs use Google Android and Windows Phone 7 platforms, we ‘ll also compare OEM service offerings with the ‘native’ services of the platforms.

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

VisionMobile - handset manufacturer services

The Leader: Apple
Apple, as usual, is in a league of its own. Apple has an extensive set of services anchored in the well-oiled iTunes content machine and MobileMe cloud services. One glaring omission is location-based services. For now, Apple has to rely on an uncomfortable partnership with Google Maps. There are persistent rumors that Apple develops its own location and mapping services (here and here). We can expect that sooner or later Apple will find its way out of its dependency on Google Maps, launching its own location-based services.

Challengers: Nokia, RIM
The next group of companies are the challengers – Nokia and RIM. Both use integrated models similar to Apple’s, combining proprietary software platforms with proprietary hardware (for now I will ignore the big unknowns of the partnership between Nokia and Microsoft).

Nokia has a comprehensive service portfolio, even compared to Apple. It ranges from the quintessential app store and music service all the way to location-based services and its own ad network. However, Nokia’s execution was weak and the future of Nokia’s services is up in the air following announced the partnership with Microsoft.

In contrast, RIM has a sketchy service portfolio, focused on its best-in-class messaging services. These include push-email, the BlackBerry Enterprise Server (BES) and the BlackBerry Messenger (BBM), in addition to the mandatory app store. It looks like RIM continues to focus on hardware and its new QNX operating system. For now, service-based innovation outside messaging takes a back seat for the BlackBerry platform.

Wannabes: Samsung, HTC, Sony-Ericsson and Motorola
Finally, Samsung, HTC, Sony-Ericsson and Motorola are OEMs building smartphones based on the Android and, in some cases, Windows Phone software platforms (Samsung also owns the bada software platform).

While Motorola is strong in cloud services with its MOTOBLUR service, Samsung leads the way in content. The Samsung offer includes music downloads and movie services, bundled with the popular line of Galaxy smartphones and tablets. Due to the licensing terms of content owners, content services have a limited geographical footprint, being available only in North America and Europe.

Overall, the services offering is very mixed for these vendors with piecemeal solutions mostly focused on content and cloud sync services.

Platforms: Android and Windows Phone
Unsurprisingly, Android and Windows Phone offer a comprehensive set of ‘native’ services across all service categories. Google Android is weak in content services compared to Apple and even Windows Phone, but compensates with leading-edge location-based services and a comprehensive ad offering. Windows Phone ‘native’ services leverage Microsoft’s Bing, Live, Zune and Xbox assets having millions of active users.

These ‘native’ services form the basis for platform differentiation and user value proposition for both platforms.

OEMs will struggle to make impact with services
Out of these handset OEMs, only Apple and Nokia come close to the breadth and scale of service offerings provided by platform vendors. It’s really difficult to see how Samsung, HTC, Sony Ericsson and Motorola can create highly differentiating services on the Android or Windows Phone platforms. For them, services will not become a solution for the upcoming wave of commoditization.

Dependency on 3rd party software platforms, lack of scale for making meaningful content deals, conflict of interests with operators and incompatible company DNA will make it extremely difficult for handset OEMs to make an impact with services.

In the words of Nokia’s CEO “Devices are not enough anymore”. No, this quote was not one of Stephen Elop’s, taken from the recent “burning platform” memo – it comes from a speechmadebackin 2007, by then NokiaCEO,OlliPekkaKallasvuo. Nokia realized early that services will play a critical role in handset value proposition. The Finnish OEM has tried hard to reinvent itself and become a hardware+services company.

The rest is history. Nokia found it nearly impossible to reconcile the DNA of a hardware company, which “lives” by device release cycles, with the DNA of a service company that “lives” by developing long term relationships with users, developers and partner ecosystems. If Nokia failed to do so with their vast resources and enviable volume leadership, what are the chances that Samsung, HTC, Sony Ericsson or Motorola will manage it?

– Michael

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[Michael Vakulenko is a Research Partner at VisionMobile. He has been working in the mobile industry for over 16 years, starting his career in wireless in Qualcomm. Michael has a broad experience across many aspects of the mobile industry, including smartphone ecosystems, mobile services, handset software, wireless chipsets and network infrastructure. He can be reached at michael [/at/] visionmobile.com]

Symbian is dead. Long live Symbian

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The King is dead, long live the King.

– Andreas
You should follow me on twitter: @andreascon

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

– Matos

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.]

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

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

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

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

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

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

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

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

Learning from the industry’s mistakes

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


The Evolution

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

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

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

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

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

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

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

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

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

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

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

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

The struggle for differentiation

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

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

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

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

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

– Vinay

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

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

The Wintel future for mobile: a wake up call for network operators

[The PC-esque commodisation of the mobile industry has been prophesied many times before, but never before has it become so lucidly clear. Research Director Andreas Constantinou uncovers the dynamics of the mobile industry that will lead to a Wintel future, and the impending disruption to the network business model]

We ‘ve all heard this before. The story of the bit-pipe future for mobile networks/carriers and the threat of Google and Facebook to the mobile industry status quo. But this time the facts are clear; the dice has been cast and is pointing to a Wintel future for the mobile industry. Bear with me – this is a long argument.

The virgin years of mobile
The mobile industry has rapidly evolved through two decades:
– 1990s growth: The 1990s was the decade of unrestrained growth, building up huge empires on thin air (a.k.a. radio spectrum). Operators invested on building networks with worldwide reach, on increasing spectral efficiency (more bits per pipe, setting 2G to 3.5G standards) and snapping up new subscribers
– 2000s competition: The 2000s was the decade of competition, reality check and disillusionment. Operators invested in competing with more complex tarriffs, deeper device subsidies, unique devices (custom or exclusives) and bundling fancy services on the device (from mobile TV to myFaves and social networking).

Next up: survival
The 2010s decade is about survival. It’s no secret that ARPU (average revenue per user) has been dropping for the last few years, and the much-promised data services have failed to deliver. Plus networks are threatened by the establishment of over-the-top services like OEM-own services (Apple App Store, Nokia Ovi, Sony Ericsson PlayNow, RIM Blackberry services), the entry of alternative payment providers (Apple iTunes, Paypal Mobile, Google Checkout), alternative voice providers (Skype, Google Voice) and of course the myriad of social networking services (epitomised by Facebook and Tencent).

So, how are operators differentiating today beyond tariff games?

Investing on device subsidies: Network operators are spending big money to snap high-spending customers away from their competitors; for example investing 300-400 EUR on the top models from RIM, HTC/Google and Apple (case in point: Orange France). The subsidies are recouped back from such customers in around 9 months, but without factoring in the disproportionately high cost to the network, where the cost increases linearly per-MB consumed. All this, for a short-lived advantage, no stickiness to the network. Worse than all – operators are pouring marketing and subsidy investments into the same companies – including Apple, Google and RIM – that aim to commoditise their network.

Selling broadband Internet dongles and mobile WiFi (MiFi) hotspot devices at flat-rate bundles that aim to drive revenues, but at the same time lead to surging network OPEX costs. To appreciate this irony, consider that operator marketing budgets are never linked to the network infrastructure OPEX budgets; and so marketing groups may spend away into fancy deals, while resulting in alarmingly high network costs, especially for network maintenance and upgrades. Operators are investing into the bit-pipe business without knowing how to monetise it.

Customising devices (a favourite pastime of operators) like Vodafone 360 and Orange Signature that aim to deliver own services on the mobile, while limiting the experience to high-end devices. Although 360 has some strategic attributes (locking customer contacts into the network), its execution has been inefficient to say the least with a team of 250 people at Vodafone needed to launch the service (which could have been accomplished with perhaps 50 people in a software startup environment). Operators are pushing Internet brands to the forefront of the customer experience (see Skype promos from Three and Verizon) for a short-lived advantage of customer attraction.

To sum this all up; operators are investing in their demise, pouring money into the same Internet companies that aim to commoditise them into bit-pipes. Worst of all is they ‘re drawn into a inward spiral, a black hole that is near impossible to escape from; as an operator, if you don’t have the latest devices and cheapest tariffs, your competitors will.

The loss of control points
The situation is much more dire, as the current balance of power in the mobile industry is about to be shaken up. Operators control around 70% of the mobile industry pie of $1 trillion, thanks to three very important control points:

device subsidies: operators (with few regional exceptions) pour large marketing budgets into promotions and device subsidies, thereby in effect dictating terms to their handset suppliers. Only Apple has been able to challenge this status quo to date, but on a tiny 2% of the mobile market. Yet, a new disruption is appearing in the form of Android that might extend to well beyond a tiny market share, to significantly drop retail price points and render subsidies meaningless (more on this Wintel phenomenon later).

mobile termination: by design, mobile operators are the exclusive gateway to reaching any specific subscriber. That’s how operators have been able to charge ridiculously high voice and roaming charges (incl. receiver pays model). However, mobile termination is slowly coming under threat as more and more services are being delivered over the network like social networking and VoIP, while flat-rate tariffs for mobile Internet is becoming the norm. Consider that Google might at some point offer free voice calls amongst Android device users. It’s a question of when, not if. But abstracting the service from the underlying network carrier, the service providers assume the mobile termination gateway role, by acting as the service transport across networks and devices.

payment broker: The premium SMS boom is the best example of how operators have leveraged their billing relationship outside their network, charging often 50-60% commission for reverse billing, i.e. the ability to charge users for a ringtone, game or televoting from their mobile phone bill. Yet, Internet players are now carving up their niche into the operator-own game in the form of Apple App Store (no doubt to be transformed into a payment gateway for third parties) followed by Paypal Mobile and Google Checkout.

Wintel and the Google game
A very important change in industry dynamics is underway. Google’s Android has morphed from a feared entrant to a loved ally, with all handset manufacturers (except for Nokia) investing in Android-powered handsets thanks to Android’s low cost of creating a differentiated handset. In parallel, chipset vendors led by Qualcomm and Mediatek are rolling out out-of-the-box solutions that pre-integrate hardware + a software platform + applications (e.g. Android Market), that can be easily differentiated in both plastics and UI.

These out-of-the-box solutions will rapidly decrease in price led by the impending price competition amongst chipset vendors (led by Mediatek exports) and the advancement in silicon manufacturing (with sub-40nm chips squeezing smartphone capabilities in feature-phone price points). Combined with Android (low cost of UI differentiation + bundled apps market so incremental revenue) this should lead to a diversity of Android-powered phone at $100 retail price points in the 3-year horizon. This is a game where Asian mobile and consumer electronics manufacturers will gladly play, by creating low-cost, on-demand phone + service solutions for media brands and operators.

This is the Wintel game of the PC industry, making its appearance in the mobile industry; only the title of ‘Intel-inside’ is still up for grabs. What’s more, with smartphone prices at $100 dollars, the operator subsidies are going to become meaningless, in effect creating a handicap for network operators and a sudden loss of negotiating power. The tables are slowly turning.

What about Symbian and Windows Mobile, you might ask? We believe Symbian will become a Nokia-only operating system (more this on a future post), while Windows Mobile is driven by short-lived motivations today (a fresh UI and an operator interest in it), which can easily be delivered by Android, once UI design and technology firms release customisable layers on top of Android (something that Ocean Observations is hinting to be working on with Brandroid = Brand + Android).

What about Apple, Nokia and RIM; the few tier-0 handset OEMs that have developed vertical propositions (from hardware to services) will still be able to command premium prices; making this so very similar to the PC industry where you can buy an Apple computer at premium price or get the same functionality for half the price in a PC clone.

The shock to the operators will be like the shock that the music industry got when they woke up one day and realised that the Internet has disintermediated their brick & mortar business model.

All is not lost
Operators can still get their act together. It’s rare that operators have invested in long-term strategy – see Orange’s investment in mega-SIMs in 2007 (albeit betting at the wrong standard). And there might be the odd operator that has the conviction and foresight at the management level to achieve such long-term planning. We ‘ve long advocated that operators should platformise (read: Network-as-a-Service) while creating new control points and meaningful brand deliverables – for a brief analysis see our Mobile Megatrends 2010 deck, especially the chapter on ‘new smart pipe strategies at the intersection of brands and consumers’. Or drop us a line.

Comments welcome as always,

– Andreas

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

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

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

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

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

 

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

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

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

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

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

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

– Richard

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

Behind the Smartphone Craze: redrawing the map of mobile platforms

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

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

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

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

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

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