Categories

Escape from license-land: Measuring phone vendor commitment to licensed mobile platforms

Windows Phone had its day in the sun yesterday. After discarding its previous seven-year effort with Windows Mobile, Microsoft started with a clean sheet of paper. However, whereas the software has been re-built, the business model has not. WP is still a licensed operating system whose primary customers are mobile phone vendors. With Symbian mostly out of the picture, WP becomes only the second viable commercially licensed mobile OS, after Android.

So with two licensed platforms in the running, how do we measure success in the licensing business? Units sold to end users is one metric. But that data will have to include the performance of vendors and operators and other distributors. And it will take a year to do valid comparisons. The only indicative metric we have available today is how many devices have been committed by vendors.

As WP is out of the gate with device announcements, we can actually measure this. We can plot each vendor’s commitment to various platforms as an early indicator of strategic success. To that end, here’s the methodology: I took all smartphone vendors and tallied how many SKUs they have announced or leaked for either the WP or Android platforms (source: pdadb.net). I then plotted each vendor on two “commitment axes” (see notes below). The more to the right a vendor lies, the more committed they are to Microsoft’s platform. The more to the top a vendor lies in the chart, the more committed they are to Google’s platform. The vendors which don’t have any licensed products lie below the origin.

What we can observe is that Microsoft has pulled several, though not all vendors partially to its side. The level of commitment is not yet very high and it has not likely reduced their commitment to Android. In other words, points are moving to the right but not (yet) down.

Framing the platforms this way helps us discuss how the market might evolve with these questions:

  1. Is Microsoft’s re-entry going to peel vendors away from Android. In other words, will points move down as well as to the right.
  2. Is there motivation for some vendors to move to their own platforms like the non-committed? We’ve shown that profits accrue disproportionately to the vendors below the origin. As a result, is the pool of available top tier vendors going to shrink?
  3. Will vendors commit to single platforms or maintain this split OS loyalty strategy? Will we see LG migrate to WP exclusive and will Others remain exclusive in Android?

I’ll throw out my predictions to start:

Microsoft’s strategy is aimed at top tier vendors more than to the “others”. This is due to a lesson they learned with Windows Mobile: having a ton of SKUs does not guarantee a healthy ecosystem (a lesson that Android has not acknowledged as true). There are positive and negative consequences. The positive is that Microsoft control the experience better, create a better brand and can participate in an effective dialogue with operators. The negative is that they are going to deal with a diminished licensee pool.

On the second question my prediction is that vendors are going to move “down and to the left” away from the licensing model. If they can’t go direct to that quadrant, vendors will consolidate portfolios around one licensed platform. The distribution of commitment I forecast will look like this: Maintaining multiple platform development teams is expensive. Branding is also confused. The upside is that you get to play the operator’s divide-and-conquer game of platform dilution (aimed at the non-licensing players in the lower left corner).

In particular, Samsung, with Bada, is likely to find ways out of license-land. Sony Ericsson may stick with Android and LG may move to Windows exclusively. That really leaves only HTC and Dell as licensees with multiple licenses.

This axial alignment is not a healthy thing if you are a platform vendor. Having one or two dedicated customers means the power of the buyer is much higher and their wishes become your command.

Which leaves only one true prize in the game: the “others”. Android is clearly the darling of “Others” who are being shunned by Microsoft. Can “Others” become the lever for Google to pry open the market? History and the tangled web that is operator distribution does not point in that direction.

——

Notes:

  1. I considered products announced only since Jan 1, 2010
  2. I did not consider any Windows Mobile legacy commitments
  3. “Other” vendors are off the scale with over 100 SKUs but represented as having 40 SKUs so as to be kept on chart
  • http://twitter.com/m4rkusr @m4rkusr

    You're omitting Motorola as if they were dead already :) I guess they were the biggest Android volume contributor in 1H 2010.

    • asymco

      I am not omitting MOT. They are in both charts. In the second chart I removed the labels because I don't want to make specific claims about specific vendors.

    • asymco

      And just to be clear, the chart measures the number of SKUs not volume of units sold.

  • Vikram

    I tend to agree that Microsoft will start pulling the hardware vendors to them and away from Android – eventually.

    I think that they will leverage the PC licensing where they can (eg Samsung) and use legal intimidation (eg Motorola) and give away free or low cost licenses (eg XP and Netbooks) to gain market share and do whatever they can and operate in the same manner that they've always operated in 80's and 90's in the PC space.

    I expect that they'll dust off the playbook (or try to) that they used to intimidate and threaten hardware vendors wherever and however they are able. Ballmer was Gates right hand man from the beginning after all so he knows all the dark arts of intimidation and whatnot to get hardware makers to bend to their will.

    …of course it won't work in the phone space the same way but I don't think that Google can use the same leverage and pressure the hardware makers to use Android in the same way that Microsoft can and will. Firstly it's not in their DNA and secondly Microsoft is desperate and will do anything. I wouldn't be surprised if they do things like bribe hardware makers like Intel did with Dell. If LG suddenly has a lot of cash on their balance sheet unexpectedly, you know who's responsible…

    …as for Samsung and Bada, that would be interesting if they really go down that route but I don't think that they really have the software chops and management expertise to really commit to that or to succeed doing that.

  • Sandeep

    Horace,

    I think you have the right idea in the short term of 2-3 product cycles when there is a lot of differentiated value to be extracted.

    In the longer term I see a few wildcards: the most important being the lawsuits and second evolution of the ecosystem around the products. The first limits the viability of Android as a 'free' platform, the second may limit the appeal of WP, if developers and content providers don't bite.

    Then there is the question of Nokia. I am sure Microsoft will court them aggressively; if Nokia makes the strategic blunder of licensing WP the landscape can look very different.

    The game is afoot.

    • http://techsanctum.wordpress.com/ Ryan

      agreed, I think the game is somewhat open right now, but it may end up going to whoever can land Nokia. In the US we laugh about Nokia, but in truth they make really, really nice hardware and incredibly mediocre software. Once Nokia finally decides to ditch Symbian, the "bag of hurt" as Senior Jobs would say, they could sway the playing field. My bets are on Windows Mobile.

      • http://twitter.com/aegisdesign @aegisdesign

        I was just reading a comment on another site where someone was asking how long it would be before someone suggested Nokia adopt WP7.

        Not going to happen. They'd be mad to throw away their own destiny.

      • asymco

        Agreed. Nokia is as likely to license an OS as Microsoft or Google is. Companies that can build their own OS will. With Linux and Web apps, the barriers to doing this are rapidly diminishing.

  • Iphoned

    I wonder how long google van stay in the Android game wthout a viable business model before shareholders revolt?

  • AlleyGator

    Horace,

    This is a really bold call. Are you sure that you can be so quick to signal a shift away from Android?

    Some of these manufacturers were falling on hard times with Windows Mobile, they might stick with Android as long as the popularity (and gross margin!) is there.

    • Sandeep

      Android's not really free as HTC has learnt. Microsoft has already extracted their pound of flesh from HTC for every Android phone that they ship. Very soon, Apple and Oracle may start extracting rents as well from HTC and other Android vendors. And very soon, you have very murky waters.

      WP is a much cleaner, transparent waters for vendors. So I do see WP adoption being fairly swift.

    • asymco

      I focus on the number of top tier licensees. Four out of 10 are already off the table. Two more will likely move in the next two years to their own platforms. One or two will move firmly into the Microsoft camp. These are not bold claims. That leaves only two major players with Android. Where Android will get volumes is from "others" and that might be a large market. I can assure you that no major device vendor wants to be in the position of having to license the core value of its own product. Rolling your own platform is getting easier especially when you consider that the APIs may be all web apps (HTML5).

      • AlleyGator

        If I was Motorola, knowing what I know about the state of their software division, I would never try to compete against Android with my own UI. Even if Android was being produced exclusively by "Other". :/

        What I think about why the important guys will stay with Android…

        Samsung just announced sales of five million Galaxy S smartphones. They've got to have a good thing going there.
        Motorola is making money again, which is a welcome change. Its Droid line is immensely popular.
        HTC is cranking out the droids, and doesn't show much of a sign it's going to stop.

        I would have said that these device manufacturers seem like the important ones, because these are the ones that are competing well against Apple without resorting to being given away as door prizes for signing contracts. As you analyze how Android avoids becoming a commodity, I would have thought that these manufacturers were by far the most important in that.

        Dell, LG, S.E.? Great to have on Android, but not making the blockbuster phones. So yeah high probability they'll jump ship.

  • http://twitter.com/_ChrisHarris @_ChrisHarris

    The interesting thing will be how developers react to the Windows Phone platform. I suspect it may be pretty easy to make an App based on Metro, but so far they all look the same. The differences between Flashlight A and Flashlight B will be even less distinguishable. The asset you need are just text, a background picture (be careful not to make it too detailed as you won't be able to read the text) and two to three icons.

    I can see many windows developers jumping in quite quickly (no design skills req.), but I can't see how the platform will be able to create a hit without it appearing on another platform first.

    Small target market and little differentiation possibilities does not make me long to develop for it.

    • colt45

      @_ChrisHarris

      Microsoft's Halo franchise is the only thing that comes to mind that might serve as an exclusive for Windows Phone 7 that could generate excitement for the platform amongst gamers. At this point it's a 'hub experience' and not full game in the traditional sense. But to your point, beyond Halo, I don't see a whole lot of differentiation between apps on different platforms. Do developers really want to write the same app across 3 or more platforms?

  • MattF

    Interesting that the carriers' desires don't appear to come into play in your argument. I'd guess that the carriers want to offer as many different OS's and as many models as possible– which would push against the tendency of OEMs to pick a platform. Carriers would love to force the OEMs to compete for shelf space in their stores– and Apple is their ally here because carrying Apple products reduces the total space for everyone else, thereby intensifying the competition.

    • asymco

      Carrier desired play into the argument which is why Windows Phone exists in the first place. I'll explain with an example. The market where operator power is (or perhaps was) most pervasive is Japan. In the Japanese mobile market, operators specified phone designs and outsourced implementation to phone vendors. In order to maintain platform control, they also commissioned operating systems. They told vendors a b and c to use Symbian and vendors x and y to use Linux. What the did not do is tell a, b, c, x and y to use both Linux and Symbian as that was redundant and wasteful.

      A model where certain vendors are anointed with certain portfolio slots and certain platforms is very sensible.

      One of the points of the visuals above is that the upper right quadrant is becoming increasingly untenable. What's the benefit of licensing multiple OS's?

  • http://twitter.com/aegisdesign @aegisdesign

    You could really mess your graph scales up if you added in Symbian SKUs! Nokia have been getting better of late with less SKUs although one has to wonder if that just isn't a product of not having an OS to put on their SKUs for much of this year.

    • asymco

      I had considered Symbian as the third licensed OS. It would add a third dimension but since only Nokia is really populating that axis, it would not offer much insight. The all-time licensing champion was the old Windows Mobile with over a thousand products. However, I kept the time frame to this year alone and did not consider WM devices shipping this year as anything more than legacy.

  • CndnRschr

    HTC has gone on record to say they will let the market decide in terms of which OS they will ultimately support (inc. both if each is viable). However, the key question is where will WP7 steal future sales from? If primarily Android, then the OEMs are in a difficult spot since their market will not grow (aside from the market in general) yet they have to support increased fragmentation. Microsoft might start demanding additional hardware features that don't make sense for Android phones and vice versa. The WP7 launch hardware, although impressive in SKU# is certainly not impressive from a differentiation standpoint. It's basically rebadged Android with a few exceptions. This will play to the head to head battle of these OS's. It'll be one interesting fight and most will be under the table (litigations and developer incentives). Meanwhile, Apple and RIM are relatively insulated.

    • OpenMind

      For Apple and RIM, more fragment of mobile OS, better for them. WP7 and Android can fight for 40% market share in between. And Apple and RIM each claim for 30% share. None of them has an clear majority. Meanwhile, Apple reaps more than 50% of profit.

      • CndnRschr

        "Meanwhile, Apple reaps more than 50% of profit." I think its more like 70%, or something equally outrageous/effective/enviable. Horace has the deets.

  • Ben Rosengart

    Are all agreed that WebOS will not be a factor in the future? Just wondering.

  • http://twitter.com/ThembeK @ThembeK

    If WP7 end up cannibalizing Android, I suspect that most OEMs will shift to WP7. If WP7 is additive, then I see a 70/30 split depending on which OS moves the most volume.

    What might spoil Android’s party and thus accelerate the shift to WP7 is the iPhone on other networks especially Verizon. 9 million Androids are on Verizon’s network. That’s probably 40 – 50% of Android’s base. The iPhone will most likely add 10 million customers from Verizon next year, and this I think is the biggest threat against Android.

  • Pingback: asymco | Taiwan phone makers balking at Windows Phone 7

  • Kevin

    @AlleyGator: I hope you do realize that Verizon offers a buy one, get any phone free for its Android smartphones. That’s at least one door prize for two contracts. This promotion has been going on continuously for almost all of 2010.

  • asymco

    As much as I'd like to agree with you, the evidence points to the fact that money still talks in the business. Consider how Microsoft was able to get 10 devices committed and 60 operators to distribute a platform that had no reason for being. There was no clear gap in the market for what Microsoft offered. It was a market where their chief competitor was offering the same thing for free! And yet they got distribution. They will get share, not much, but they will get some.

    • Joe_Winfield_IL

      I agree that money talks. It's impressive that Microsoft has any device partners after leaving the old WinMo to die. However, most of the 10 devices are re-badged Androids. The hardware portion of the cost to develop these phones was minimal, and the OEMs have incentive to be attached to a winner early in its cycle if WP7 does succeed. Think about how well HTC has done by being the first to market with Android devices. I don't believe they would have had any brand equity today in western markets if they had taken the wait-and-see approach with Android.

      Also on the point of the phones being re-badged Androids, most early Androids were re-badged WinMo devices. At the time, it was apparent that Windows was inferior to iPhone OS, so the handset makers had a reason to try something new. They simply trotted out existing hardware with a beautiful new UI. Had these devices failed in the marketplace, Google would have had a hard time pushing Android to anyone else, and Google's venture would have died on the vine. I suspect that Microsoft can and will fund its way into continued product development for a while, but if the retailers can't move the product on their shelves, WP will be relegated to the lesser "other" manufacturers.

      As an AAPL long, I hope my intuition is wrong. Android is a market share phenomenon, and anything WP can do to chip at their lead with licensed manufacturers benefits Apple.

  • Niilo

    Very useful roundup!