One of the beauties about the world of high tech strategy is the complex relationship between contrasting business models. In business school, I learnt about two such pairs of core strategy choices: “open” vs. “closed”, and horizontal vs. vertical integration.
What is truly interesting about these contrasting choices is how they propagate (or not) throughout the value chain. In abstract terms, how does your suppliers’ decision to be more “open” or “closed” affect your decisions? How does it impact the strategic choices of the entire value chain? The answer is not always obvious.
The example our professor gave in school was ARM. ARM pursued a strategy that was both extremely “open” (any chip manufacturer could license it) and horizontal (ARM itself only offered architectural designs, it didn’t produce any implementations). ARM has incredibly high market-share at its stage of the value chain; Intel has a negligible presence in mobile to date. If we believe that “open” and horizontal can and will propagate through the value chain, then the mobile value chain should look exactly like the PC value chain – any consumer should be able to go to a hardware store, pick up a bunch of spare parts, and assemble his/her own phone. Instead, the most powerful player downstream in the mobile value chain is Apple, which many people would eagerly slap on the words “closed” and vertically integrated.
Without delving into why this is the case (that would be too long an effort in writing – essentially a review of the entire mobile value chain and analysis of the power dynamics among industry participants), we can perhaps summarize a law – “open” can be used to the benefit of “closed”, and vice versa. The same can be said of “horizontal” and “vertical”.
Taking this law, we can try applying it to a piece of very recent news. At the Mobile World Congress 2012 in Barcelona, Mozilla, one of the champions of Open on the web, announced a partnership with mobile operator Telefonica. The announcement is essentially the reveal of another mobile OS, one that is completely based on web technology (an analogy could be the Chrome OS for laptops). This announcement is interesting partly because of the open web standards angle, but also partly because of the direct R&D involvement of Telefonica (and other mobile operators). The second part is a hint for analysts trying to read the news – if mobile operators are not only supporting it but actually developing it, then there must be something for them in it?
This is where our newly discovered law comes in. No doubt some tech enthusiasts will jump at the words “open” and “web standards”. However we can safely predict that the mobile operators fully intend to use this web-standards based OS to strengthen their position in the value chain (whether they achieve that is down to execution). At a shallow level, any market share gained by this OS will counter the influence of Android and iOS; at a deeper level, direct ownership of the OS (as core contributors to the project) in theory allows operators to regain some control over the end-device and therefore the consumer – this could be related to system processes that relate to billing, as well as operator control over the app store. Let’s wait and see.
The other interesting thing, that just struck my mind, is how this impacts Android. Remember, Android is pursuing the horizontal strategy (a la Microsoft Windows), so any new OS that fragments market share is in general bad news. Not only that – Mozilla is going with a my “open” is more “open” than your “open” strategy here, which again brings in the topic of asymmetrical competition: Google theoretically is pushing Android to help grow its advertising business, but Mozilla is not in the business of making any money, period. So Mozilla could be pursuing exactly the same strategy as Android, without any hints of potential self-interest of bias. In that sense, it might not actually hurt Google as a whole, but it will be directly competing with Android. Now that’s another interesting thought… But I’ll stop here, since it’s getting late and I’m starting to go in circles…