Motorola—like HTC—is thus a bellwether for makers of Android phones, whose sales have now caught up with those of the iPhone—about 300,000 a day worldwide. Some industry analysts doubt that it will be able to create a big market for its devices and make enough profits before cheaper providers move in. If they are right, the smartphone market may eventually become like that for personal computers: a handful of huge competitors with tiny margins. The difference will be that these firms will hail from around the world rather than being mainly American.
When I argued that the meek shall inherit Android, the profitability data was the core evidence. That argument, made in August, was:
So here we have the real challenge to Android: partnership with defeated incumbents whose ability to build profitable and differentiated products is hamstrung by the licensing model and whose incentives to move up the steep trajectory of necessary improvements are limited.
In other words, Android’s licensees won’t have the profits or the motivation to spend on R&D so as to make exceptionally competitive products at a time when being competitive is what matters most.
The surge in emerging market Android entrants has been the latest setback for branded Android vendors. What should be the long term strategy for companies like Motorola and Samsung?
Paradoxically, Motorola, being the weaker, has the best chance for successful recovery. The clue lies in both what Palm (now HP) and Microsoft did: starting with a clean sheet of paper and building their own platforms.
This might seem futile given the network effects that current platforms are gaining, and there is a big execution risk, but the alternative is no alternative at all. The big incumbents cannot fight against the clone makers.
Technically, building a new platform is not as daunting a challenge as it used to be. Palm, a small company, managed to do it in about 2 years. Microsoft, a large company, took 18 months. Google built theirs in about 2 years.
They all took advantage of existing code bases (Linux or Windows CE). They also rely on web standards for their APIs (.NET or Java or HTML5).
The challenge is bigger in attracting developers, though again, some core set of apps and developers can be obtained on the promise of brand power alone. Intel and Nokia is using this power for MeeGo.
Motorola’s advantage today is its new autonomy and singular focus on mobility. It has hit the reset button. There is no better time to be courageous and there are no sunk costs to confuse investment priorities. Android was a necessary stop-gap measure and the Droid timing was very good (before the clones and before iPhone distribution expanded). However, now would be a good time to start building a Motorola platform for the future.