A quick follow-up on Anssi Vanjoki’s observation on Android. When he suggested that Android would be just a short-term solution for phone providers the metaphor he used was that it was equivalent to peeing in your pants for warmth in winter.
I wanted to point out that strategically, using Windows Phone is the same thing, except that vendors have to pay for the urine.
And then it all went wrong. Mobile utility providers became mobile operators. They decided they knew what their customers wanted. They turned into the electricity company trying to sell us toasters.
via The joint mobile operating system: A risible idea | Mobile Industry Review.
Great reading.
Nokia’s Uk managing director Mark Loughran reckons that the Nokia N97 will prove superior to the iPhone due to its significantly better camera sensor, lower tariffs and its radical change in styling and especially form factor from the company’s ex-flagship the Nokia N96.
Loughran said: “The new iPhone is an evolution rather than a revolution and for people trying to decide whether to get a Nokia N97 or an iPhone, it comes down to a decision on performance and value for money.”
Loughran added: “the new iPhone seems to have the same design and colour, upgrading froma sub-standard two-megapixel camera to a still low 3.2 megapixel camera, and is probably a disappointment.”
Nokia General Manager Believes N97 Will Beat The iPhone
Good times…
A quick update on the analysis of mobile phone profits. If the available profit[1] (i.e. excluding losses) were summed and each vendor’s profit were measured as a percent of this total, this chart would tell the story of the last three years:
Note that profit share has mostly shifted from Nokia to Apple, though Sony Ericsson and LG were also casualties and Motorola has not had anything to lose.
Some assume that the future belongs to the Koreans but we see that the relatively small amount of profit that Samsung has (less than RIM actually) has not changed much. HTC is also shown to be a steady performer but not having displaced much from competitors.
Will Android change this picture? As I’ve argued before, Android is most attractive to the unprofitable and the strategically constrained. Can having undifferentiated new products change this? As Nokia is unlikely to license Android, and RIM seems very unlikely and Apple is out of the picture, the only possible contenders are Samsung, LG, HTC, Motorola and Sony Ericsson.
Motorola and Sony Ericsson have both returned to profitability but with a very small volume Android strategy. However the incumbents fielding Android are really facing a far more sinister threat: the smaller local brands in China (e.g. ZTE) and emerging markets.
On profitability, the smaller challengers are unlikely to make a large impact, but they will constrain the profits of other licensees. The distribution of phones on a global scale is challenging without a brand, and brands are very expensive to build. It’s still possible over a longer timer frame that a small brand like HTC can emerge on a global stage. But in terms of profit capture, challengers will mostly “steal” from the already constrained big brands running with Android.
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[1] Profit is not the only measure of success and can sometimes be a deceptive indicator. For this reason I look at a longer time frame so that anomalies, seasonality and business cycles are smoothed over. As flawed as it is as a measure, the most important reason to pay attention to profit is that it’s the only fuel for growth in the long term. Companies that are consistently unprofitable (e.g. Motorola) face diminishing degrees of strategic freedom further lubricating a downward slope toward financial distress.
The operator instinct for consumer hostility knows no national boundaries.
Here is a table with no less than 100 numbers to ponder when deciding on an iPhone plan:
The iTunes app store has gone over 310k apps approved and has 250k apps in its catalog. The Android Market, in spite of (or perhaps because of) an abundance of copyright infringements, is growing nearly as quickly. According to at least one source, there are over 130k apps.
The way to study these two catalogs is to look at the number of new applications being approved (or added) on a monthly basis.
Even better would be to index to the same starting date, as in the following chart.
The Android Market grew grew more slowly than the iTunes store for the first two years but has accelerated to nearly the same rate now. Meanwhile, the iTunes Store has shown seasonality around the holidays (though we’ll have to see if it repeats this year) and has held fairly steady at 20k/mo.
The policies are also shifting: On one hand, Apple has also signaled that they are not willing to accept “me-too” copies of simple apps. On the other hand they clarified policies and began to allow interpreted code apps. Google has not yet reacted to infringements on its store but it’s probable that they will have to respond with some policing as download volumes grow.
The fact that the Android store is not policed or curated reduces the barrier to listing for developers and, in theory, should encourage a more rapid add rate. But the Star system of the iTunes store encourages more attempts to find hit apps. So in many ways we see that the two have an orthogonal approach:
There are few conclusions we can draw at this time about long term sustainability–after all these are ongoing and fairly young experiments. It does seem that both platforms are attractive enough today to create critical masses of apps, perhaps exactly because they don’t put forward the same value model.
What do Palm, Kin, Nexus One, and the Simon have in common?
Beside being market failures, it’s the fact that they were efforts by large companies that had no business in smartphones. What’s more important is that the motivation for participation was not well thought out.
HP, Microsoft, Google and IBM tried (or are still trying) to capture a piece of the hardware revenues from smartphones, but their results were dismally poor. It turns out that with the exception of RIM, HTC and Apple, there have been no smartphone entrants which have succeeded against the incumbent voice phone makers.[1] Furthermore, Apple is the only large technology company to succeed. Studying the efforts that the successful entrants undertook shows that (1) it takes a very dedicated effort, led from the top, and (2) it takes a lot of capital or a lot of time. Those who tried and failed were not dedicated to the concept at a high enough level and were not patient enough for growth.
I think the real motivation to enter the market is rooted in vanity: appealing to the need management to feel a part of something new and important. If you are an ambitious internal champion skilled in political maneuvering, it’s fairly easy to appeal to this vanity in order to secure funding for these efforts.
This string of vanity-induced failures is not likely to end anytime soon. No doubt Dell will keep trying with the Aero, and we might see the PC companies rush in again as they did with PDAs.
We also hear today of the evolution of INQ’s product (INQ Social Mobile) into some sort of Facebook phone. However, is the Facebook phone project a vanity phone? Maybe, but the counterpoint is that this is not likely to be a smartphone. It’s more likely to be a feature phone and, as such, it’s not attempting to be something so grand or vain.
The real comparison might be to the Kindle. A specific, purpose-product built by the most motivated and best-positioned service provider. The Kindle has had some (unspecified) amount of success because it was developed to light specs and with a well-established distribution channel (amazon.com).
So although the motivation might be more sound, the challenge for Facebook will be the same as for Google: distribution. At the end of the day, without operator support the product will still remain a niche.
[1] I note here that Android and Windows Mobile are not phones but platforms and this article deals specifically with hardware.
Since wireless subscriptions in the US are running at about 100% penetration, it’s possible to classify the wireless subscribers as representative of the entire population. So it’s safe to categorize the population of the US by the phone OS they carry.
The left part of the chart shows data from Nielsen that breaks up the population by the OS to date. The right part of the chart shows my estimate for how the platform shares will evolve by this time next year. The non-OS share will still be above 50% but it looks like it might shrink even more rapidly after reaching a tipping point of half the market. (Note these charts do not show quarterly sales but installed base of each OS).
My hypothesis remains that smartphone user bases will be balanced (or fragmented, depending on your point of view) by operator portfolio decisions and chronic constraints on distribution.
Consider what RIM had to overcome to even be: It was an outsider entering the mobile phone business at a time when incumbent market power was far more concentrated. It evolved from data-only pagers awkwardly adapted to carry voice without pandering to the fashion consciousness of its contemporaries obsessed as they were with the RAZR. Its foothold market was the most difficult market to enter, the US; and within it, in most difficult sector–business users.
RIM’s solution has no architectural elegance and their non-standard approach to email using their own servers and protocols defied all IT policies regarding security and the entrenched use of Exchange. Even after Microsoft offered a cleaner solution (Exchange push) that avoided the RIM back end, businesses otherwise committed to Microsoft stuck with RIM for mobile email. In spite of various government opposition, RIM continues to grow internationally.
Even its acceptance may be an accident of history.
The absence of interoperable SMS in the US early last decade meant that there was no reliable way to send text from one mobile to another across CDMA and GSM networks. The Blackberry was hired to to the same job that SMS was hired to do anywhere else, but by the time SMS was working in the US, the use of Blackberry increased irrespectively.
It should be no wonder then that the company can be considered both disruptive and a dead end. Analysts have been split about it from day one. Gartner advised against adoption by any self-respecting IT shop.
Equities analysts are still split into bulls and bears more evenly than any other company in this space. See: RIMM: Street Split Sharply On The Stock; Avian Cuts Rating (Updated) – Tech Trader Daily – Barrons.com
The arguments are pretty straight forward:
vs.
The market has largely voted with the bears as the price shows absurdly low valuation (4.3x EV/EBITDA) but the company continues to show growth quarter after quarter.
My own point of view has been for some time that RIM’s disruptive days are over because the engineer in me says that their code base is a dead end. But the disruptive analyst in me leads me to be hesitant in proclaiming their imminent demise. The fact remains that their product is good enough for a subset of the users who want nothing more than a messaging phone. I will add however that this subsets unlikely to grow especially relative to the number of users who will opt for more highly functional devices.
So the riddle of RIM remains: rumors of its death has been exaggerated but it’s not an unforeseeable growth story anymore. As a result the company is in limbo.
Noteworthy data (with my notes in parentheses.)
Research In Motion CEO Discusses F2Q2011 Results – Earnings Call Transcript — Seeking Alpha
Asymmetric Competition