Month: March 2013

What are motivations to fork Android?

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There are a lot of discussions – and quite a few attempts – of forking Android. But why would a company try to fork Android in the first place? What are the strategic motivations?

To try to get a comprehensive picture, let’s put ourselves in the shoes of different players in the broader TMT value chain.

A typical handset vendor –

  • Generally speaking, forking Android allows for deeper differentiation compared to run-of-the-mill competition, if the vendor has the software prowess.
  • An extension of the above, another consideration is to offer a customized OS deeply tailored to a specific market, e.g. China, where the local Internet landscape is drastically different from the west, and hence Google search / Gmail / Youtube etc. are irrelevant (making it far less attractive to stick with Google’s stock Android). A lot of big Internet countries actually fall into this category (if partially), e.g. Russia, South Korea, and perhaps Japan.
  • Another possibility is to serve the specific needs of a big customer – e.g. a telco, or a government agency; or generally, a big company that has very specific plans on how the devices will be used (e.g. as a retail POS). This doesn’t generally impact consumers, though I’ll call out telcos later since their perspective is important.

An Internet company –

  • Very similar rationale to why Google created Android in the first place – gain distribution within target audience. For a Internet company with a large enough set of services and users, creating a controlled, dedicated and direct channel with the end-user is a strong temptation. Amazon is the first company that actually did this on a large scale with its Kindle Fire tablets; we shall see if Facebook does something similar next week.
  • Again, in places such as China, there is even more incentive for the major Internet players to fork Android, since Google is conspicuously absent and players would love to fill the void.

A telco –

  • Fewer and fewer telcos nowadays actually have strong value-added-services of their own (we can thank the iPhone for dramatically pushing adoption of over-the-top services – i.e. apps), but for a brave telco that still wants to retain a bigger cut of the pie, backing an OS of their own is a logical approach. China Mobile did this for a while with its OPhone, to little success.

A startup –

  • A startup could be trying to fill the gap for any of the entities above; in that case, the motivation is the same, except it’s being executed by an outside party.
  • There is space for a startup focusing on creating an Android fork without catering specifically any of the interests above. The initial motivation is to capture a sizable user-base by offering a better product, which could serve any number of future monetary goals. An example would be this week’s unveiling of the Smartisan OS in China, which was incredibly hyped up in the tech community. The Smartisan team is focusing on what they think is a far more usable version of Android, in the hopes that superior usability will lead to market share, which they can later monetize either by launching their own phone or other forms of industry partnerships (e.g. as a gatekeeper of their user-base for other Internet services, collecting a referral fee in the process).

MINOR UPDATES:

A couple of missing points to add to the original post.

For companies (both large and small) trying to target adjacent markets, Android offers a compelling starting point to build an offer. Example adjacent markets are gaming (where OUYA recently unveiled their first attempt) and in-vehicle systems (such as Ford’s SYNC) which are resembling tablets day by day.

Another motivation across the board for large companies is to strategically counter Google’s influence of the market. As in, forking Android just for the sake of undermining Google. To a certain extent, Microsoft’s continued investment in Bing is motivated by such thinking – keeping Google in check by owning and growing Google’s largest direct competitor.

How long can content region-locking last?

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One of the questions I’ve pondered a lot recently is the topic of content region-locking. I’m mostly talking about the practice of TV/film rights owners reselling their content to different local providers across the world, with each local provider only having license to distribute the content in their local territory. Examples of this are the region codes in DVDs (and in VHS previously), and of course different TV networks across the world showing the same show to their local audience. This has been a great demonstration of price discrimination in action, and has generally helped rights owners maximize their revenue/profit.

In the analog, or rather, pre-streaming world, there were attempts to arbitrage the system, with varying degrees of success. Pirated satellite TV has been around for ages, especially in emerging markets such as many parts of Asia. And of course the whole pirated DVD industry, which was quite dominant in countries such as China – as evidenced by DVD hardware manufacturers having full region unlock as a must-have feature – if your brand of DVD players can only play DVDs coded for the Chinese market, you might as well not go into business. In mature markets, it usually wasn’t worth the effort for the average person to try to steal satellite TV; although western visitors touring China usually tried to take full advantage of the local DVD prices, knowing that they were buying pirated copies of the whole box-set of Lost (or some other long-running series).

In the Netflix/Hulu world, where rights owners are hesitantly putting their content online, the situation suddenly gets very complex. Rights owners, used to thinking of the virtues of region-locking, are rightfully reluctant to give any one streaming provider (say, Youtube) worldwide rights to their highly valued content. This is why Netflix has to expand one country at a time, while they carefully negotiate their rights; this is also why you can only watch Hulu from the US.

However, in the online / streaming world, the hoops required to jump through to pretend to be a visitor from the US (and therefore acquire the content on Netflix/Hulu) is dramatically lower vs. the offline / physical world (where you literally had to buy a plane ticket to go to China to enjoy the low cost of content). And service providers such as Netflix and Hulu thereby have a real issue of enforcing their rights management vs. harming the user experience of the primary users they are trying to serve. The monthly cost of getting a VPN that offers a US IP address is usually less than $10 – unless Hollywood can get regulators to regulate VPNs, it is hard to see how they can avoid a continued in-flood of global traffic to Hulu (as more content is put online, the value of VPNs will rise further, and more people will adopt VPNs), which undermines the entire premise of region-locking.

What’s even worse than global traffic flooding to Hulu is the fact that there are more and more content being put online legally outside the US. As US TV series have caught on in China (in a big way) in the past 5-10 years, the leading Chinese video sites are coming to Hollywood to acquire content. On sites such as Youku and Sohu, top programming from AMC such as The Walking Dead, Breaking Bad and Mad Men are all legally available (usually in a few hours after they air in the US) to users from a Chinese IP address, all free of charge. There will certainly be entrepreneurial efforts in the US to arbitrage this discrepancy – after all, why should you buy/rent these shows from iTunes when you can access them from Chinese providers with a free Chrome extension(search “unblock youku”) or a Chinese IP VPN?

This certainly begs the question – is it legal to get a VPN to enjoy content that was licensed to a certain region? I am not a legal expert, but even I can see that this easily crosses into net neutrality territory and is a legal mess for rights owners to try to enforce. Furthermore, there are so many legitimate uses of VPN tech (prime example – bypass censorship) that it seems unfathomable that VPN providers would comply to limit/monitor/block VPN traffic when it comes to video. And while services such as Hulu can be pressured to improve their tech to try to block VPN IPs (is that legal?), or add more screening measures (e.g. you must create an account with a US credit card, or show you are living in the US via a utility bill statement), all these would certainly hurt the user experience – after all, I’m just trying to watch some TV, why do you need my identity?

At the end of the day – getting a US VPN to watch Hulu is a lot better than going to thepiratebay.se to download the same show. At least in the first case Hulu generated ad revenue from the visitor, which rights owners should get a % share of. The question is how mainstream such activities can get, and how fast – if an entrepreneurial VPN provider tries to make a marketing push by highlighting the rich content available in overseas markets, will rights owners be able to effectively respond?

App Store “10x” download speed boost in China

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A bit of news that has got minimal English coverage in the past couple of days: Apple seems to have rolled out a CDN update for their App Store in China, with folks talking about as much as a “10x” download speed increase for end-users.

This is the type of unsexy but critical infrastructure work that at the end of the day will make a big difference for the user experience, and therefore, a company’s top line (and bottom line). I tried updating some apps while in China a few weeks ago – it was painful to say the least. Hopefully this dramatically changes things. And this is also the kind of stuff local entrepreneurs in emerging markets need to agonize over – how do you make do with poor infrastructure, be it broadband penetration, availability of credit cards (and other payment methods), or just poor end-device computing power (cheap PCs).

I think this story is interesting for potentially another angle – I’ve always wondered how much of the iPhone sales in China are driven by luxury goods buyers, the type that are usually late tech adopters. I’ve noticed anecdotally that many owners of early version iPhones in China were the well-to-do who used it as a status symbol – I doubt these folks likely explore the App Store that much. On the other end of the scale, there was and has always been a active scene of sideloaders, and I suspect iPhone jailbreak rates are much, much higher in China. These two opposite groups of users both have little use for the official App Store – and that could be why they’ve put up with slow App Store speeds for so long.

Google Keep’s reception woes a lesson in community management

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Google launched a new product called Keep today, and the tech commentary has been quite negative. What’s interesting about this narrative is how little of it is about the actual product itself. Om Malik’s post is very representative in this regard, with a pun jab in the title. And the responses on Twitter aren’t much better.

The general sentiment is – why should I use Google Keep, when you’ve just shown with Google Reader that you can shut down a product at whim? This may be a valid sentiment to have, and it is also only natural for tech bloggers to seek drama (in the interest of generate page views) – so this should have been something that Google product managers have anticipated in advance. Especially given that the blowback from the Google Reader development has been quite strong (a lot of discussion, petitions, competing products jumping on the wave to draw users etc.) and is still very much ongoing, the Google Keep announcement should have been delayed or tweaked to acknowledge the sentiment over Reader.

Overall, the Google Reader situation and the Google Keep launch timing shows a general passiveness on Google’s end to engage with its user-community in online dialogues. It is very interesting given the overwhelming strategic emphasis on Google+, why aren’t Google’s product teams using Google+ and/or other social media to engage their end-user communities? Is there a forum where Googlers regularly interact with end-users? How often has various Google teams done Reddit AMAs (or something similar – it seems a few Google teams have done AMAs on Reddit the past couple of years)?

These questions may be somewhat unfairly overweighing the importance of these community engagement channels, since Google primarily provides a utility-like service (search, email), and alas, most consumers don’t find it interesting talking with their gas, electric or internet provider. However, Google also maintains the image of a bleeding-edge innovation company (Google Glass, self-driving cars etc.), and in that regard it is crucial that Google effectively engage and manage its community, especially the early adopters and vocal advocates.

In the past Google has been seen as the company that does no evil and could do no wrong. It had a golden brand and it could dependably rely on a host of external advocates to defend itself and push its world-view. That has obviously changed, and Google needs to start showing sensibilities towards its end users. Addressing the ongoing complaint towards Google Reader would be a good place to start – it doesn’t need to change its decision, but it should at least provide more context over how the decision was made and perhaps make some compromises / compensation to appease the community.

Google’s long-term disconnect with Android

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Fred Wilson has an interesting opinion piece today. He specifically calls out the following tweet and goes on to argue against it:

Fred’s argument is that Google is thinking long term, while Apple and Samsung are thinking short term. This is why while Apple and Samsung rake in billions of dollars of profit today, and Google comparatively doesn’t seem to be making much in mobile. He concludes the post with a with trailing-12-month stock chart comparing Apple and Google, and noting that the market understands Google’s long term view – hence its stock is significantly outperforming Apple’s stock.

I recreated Fred’s stock chart here:

Screen Shot 2013-03-18 at 10.47.44 PMIndeed a grim chart for Apple, and in support of Fred’s viewpoint, right?

Well, if you show the same trailing-12-month stock chart, but just time shift it back 6 months to Oct 1, 2012, this is what you get:

Screen Shot 2013-03-18 at 10.50.13 PMDoes it still support Fred’s argument, or does it support the opposite? What has changed in the past 6 months that has dramatically shifted the tide towards Google and against Apple? If anything, aren’t there reports of Apple gaining market share (and Android losing market share) in the most recent quarter?

We can play around with these stock charts some more, but the point is – it is of little value to pull out the most recent stock chart when it just happens to conveniently support your pre-assembled conclusion. Fred could have made the exact same post a few months back – would he have used the stock chart as an argument then?

But enough of that, let’s talk about some of Fred’s other thoughts, and here I quote the meatiest two paragraphs:

…They have gmail on so many phones. They have google maps on so many phones. They are getting the majority of searches on mobile phones. And that doesn’t even begin to address Android itself. It is the dominant mobile operating system around the world. Just think about all the data they are getting from this enormous mobile footprint they have assembled.

You can change handsets pretty easily when all your data is in the cloud. There is no moat around a hardware only franchise these days. But the software you choose to use on your phone is different. There the moat is much bigger. And where your data goes in the cloud is even more important. Changing that out requires a major effort for an end user.

Some observations here – first, Google doesn’t need Android to put Google maps and gmail onto phones; in some cases Android helps with that, in plenty of others Android actually works against Google in terms of promoting Google services. Just read a few of Benedict Evans’ posts, such as this most recent one.

The second paragraph is a much stronger argument, but again, there is a disconnect – Android the OS is not Google’s cloud service. In an alternate universe, Google never created Android and coexisted peacefully with Apple, offering deep service integration with Apple’s devices (remember the original iPhone and how Youtube, Google Maps et al. got preferential treatment?). If the argument is again Android provides a delivery channel for those cloud services, the counter-argument is again two-fold: 1) if Google had stayed as a neutral cloud services provider, some (if not all) hardware vendors would likely be fighting to integrate with Google’s services, giving Google the access it needs anyway; 2) Android can and has been used against Google, as delivery channels for other cloud service providers – Amazon and all the Chinese internet companies actively do this.

In closing – I don’t disagree that Google could be playing the long-term with Android, but they are tackling the long-term disconnect in terms of how Android fits into Google’s strategy. It’s not all roses as Fred and his stock chart suggests.

 

high-end non-brand Android phones in the US

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following up on my previous post about the large contingent of non-brand (the “others”) Android vendors in China, it’s interesting to read this post in the Verge today. Essentially it’s about a non-brand handset vendor in Florida, BLU Products, that will sell high-end Android phones for $299.

What caught my eye was this intro paragraph from the post:

Sammy Ohev-Zion starts our chat with an economics lesson. It costs every company about the same amount to manufacture a phone, he says — the price of an Nvidia processor and a Sharp display is consistent whether HTC, Nokia, or Motorola is signing the check. But those costs are only a small piece of the price you wind up paying when you walk into a Verizon store and buy that phone — which either costs upward of $500 or requires a hefty two-year contract. You’re also paying for Samsung’s nine-figure marketing budget, HTC’s HR department, or Sony’s huge New York City skyscraper. What if you could buy the same high-end phone from a company without all that cruft and overhead? How much would it cost?

Ignoring the second half of the paragraph for a moment, and we can make a sharp observation from the first couple of sentences – horizontal integration business models (such as those employed by Nvidia and Sharp) have dramatically reduced the barrier to entry for a end-device manufacturer such as BLU. This is nothing new; it existed in the feature phone days, and it certainly existed in the assemble-your-own-PC days. What may be new is how assembly and manufacturing techniques have evolved to the point where a new entrant can storm into the market with devices that look almost as polished as those of the premium brands. In other words, the fact that these non-brands (BLU and the ones I mentioned in my previous post) are offering decidedly mid-market devices, and not just sticking to the low end of the market.

Again, this is enabled by horizontal business models across every layer of the value chain – since Foxconn owns the assembly lines that craft Apple’s devices, you can be sure that sooner (ever more sooner, these days) rather than later these manufacturing know-hows are enjoyed by Foxconn’s other clients. This leads back to the point I harped about in the previous post – hardware differentiation is no longer a source of competitive advantage, as no one can exclusively enjoy hardware differentiation for pro-longed periods of time (it’s now measured in months, not years); to achieve differentiation and therefore profits, players must differentiate on software – and thus all the players in the Android camp are in a battle till death.

The “Others”

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Techrice has a good recent post on China’s army of hardware vendors creating competitive Android smartphones. Benedict Evans has also written about this some weeks ago, and I will borrow the category name from his eye-popping chart as the name of this post.

Having spent a week back in China, I’ve had a chance to witness first hand the Android devices commonly tracked as “Other” in market share reports. A good friend of mine showed off his Jiayu G3 and quizzed me on the price. I guessed 2000 RMB (a bit over $300), since this was the price point for a mid-high level phone in my memory, and the production quality of the device (I didn’t know the brand at the time) seemed quite high. I lowered my bid a number of times before he finally said, “it’s under 1000 RMB.”

When I got home that night, I did some quick browsing of Jiayu’s website. Interestingly, this small vendor from the west of China (registered in Shaanxi province, hardly a place renowned for consumer electronics, as far as I know) is on the brink of releasing its latest flagship device in its most premium line, the G series. The upcoming G4 boosts a quad-core CPU, a gorgeous 4.7″ screen, and a 13MM pixel back-camera. It’s not exactly the Samsung Galaxy S4, but it will be on sale at a fraction of the price – I couldn’t find the exact price, but based on the marketing positioning, it should be around 1000RMB (roughly $150).

Jiayu is obviously not the only game in town. On its community forum, enthusiastic supporters of the brand were quick to dismiss the upcoming iocean X7, which seemed to be a hot competitor of the G4. So I went over to the iocean site for the product to check it out. The X7 boosts some equally impressive specs – the same quad-core 1.2GHz CPU and a 1920*1080 resolution 5″ screen (which is a PPI of 443, even higher than the Galaxy S4 I believe?).

Now, both of these devices are not live on the market yet, so the exact price points are not known, and whether they actually are as advertised remains to be seen. However, there are already a few things worth commenting on.

First, the heated e-commerce wars in China of the past few years, as well as the prevalence of Taobao (which popularized shopping online), has meant that it is legitimately possible for a Chinese hardware startup to try direct selling smartphones online, as opposed to navigating the deeply complex offline handset retail landscape. This doesn’t mean that offline handset retail is unimportant; it just means the entry barrier has been significantly lowered.

Second, in my opinion these devices reaffirm the argument that it is near impossible to achieve differentiation in Android manufacturers based on hardware. It seems that any vendor worth his salt can create sexy devices, with design inspirations from the leading brands such as Apple and Samsung. And the moment the top brands reveal their latest hardware design, you can be sure that players like Jiayu / iocean (of which there are many) will take note. (After all, the current hardware paradigm revolves around a big piece of touchscreen-glass – how different / unique can your design be?) This is why Samsung is trying so hard to introduce software features unique to its hardware, as the specs alone do not justify the price premium.

Third, it’s exciting to see Chinese companies pick up so quickly the marketing execution skills of global brands. Both Jiayu and iocean’s websites were clean and minimalistic, which could be taking a cue from Apple. It was also funny to see these local brands copy each other in terms of marketing tactics – Jiayu and iocean used the same icons where they list out their shipping and return policies (7 day free return, 15 day exchange etc.). But beyond website design, these companies are also savvy enough to build and leverage their consumer community – both companies’ discussion boards seem to be quite active, with vocal posters discussing topics ranging from software/games to debating how their phones stack up against the competition. Jiayu’s discussion board gets 10,000 posts a day, which is not a trivial number by any measure – and this community approach is certainly distinctive compared to the big brands (which usually don’t offer a general discussion forum, and instead only a customer support board).

To sum it up – I will enjoy following up on this topic and watching to what extent these scrappy Chinese hardware companies can impact the market. This could be a very exciting year.

“Google controls too much of China’s smartphone sector”

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Reuters published an article that summarizes a recent white paper from China’s Ministry of Industry and Information Technology. In the white paper, the ministry expressed concern that Android has too much market share in China, and that Google has discriminated against local companies in the ecosystem, as well as restraining their development in certain cases.

The white paper is early signs of a regulatory threat, but that’s not what I’m interested in discussing – Google has long had a tumultuous relationship with the Chinese authorities, and this development would also further reinforce the stereotypical view (in the west) that the Chinese government favors local companies and discriminates against western tech companies.

I have not used Android much in China, but I’m having some ongoing experience as I have a temporary Android phone while I’m currently in China. This device is a sample of one, of course, but it paints a very different picture than the notion that Android has too much control over China. The phone is a Samsung phone (model number GT-S5820) deeply customized for China Mobile. It runs a heavily modified version of Android 2.3.6. There are no Google services installed on the device; instead, it comes pre-loaded with 5 different browsers, courtesy of all the local Internet giants (a browser from Sina, a browser from Tencent, Opera, etc.). The map application is from Autonavi, the major local player (which Google also sources data from, if I’m not mistaken). What I was surprised at was the lack of any pre-loaded apps from Baidu – perhaps they didn’t get a deal with China Mobile?

I wonder how many Android phones in China are like this one – yes, it is running Android, but for all intents and purposes, Google has no say / no gain from this device. It merely provides a free OS on which all these other players provide their own value add. Samsung is the gate keeper for OS upgrades – it seems I’m locked on 2.3.6, unless I hack the phone and gain root access. There are one-click apps that help do that, but probably the majority of users will not go through the hassle of rooting their phone and loading the latest and greatest from Google, especially when the phone is deeply customized for them already – all the services are very local.

When Google made its high-profile exit from China a few years ago, it also burnt all bridges for profiting from Android in what is probably Android’s largest market. If the Chinese government piles on regulatory action on top of this, the irony would be too rich. Regulatory fireworks aside, I expect local companies to continue to thrive off of forking Android – what will be really interesting is if any of those local players can gain enough domestic traction to start pushing their version(s) of Android in international markets.

How the West was Won (or, another round of “open” vs. “closed”)

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John Gruber posted a critique of a Tim Wu piece in The New Yorker. The ideas in the Gruber post are nothing new, but it’s interesting to see this topic come up time and time again.

Wu’s basic argument is “open beats closed,” with the modifier that “closed can beat open, but you have to be a genius.” Unsurprisingly, he enlists Wintel and Google as supporting evidence for why open beats closed.

Gruber specifically disagrees with Wu’s logic for why Windows defeated Mac in the original PC platform wars of the 80s-90s. In Gruber’s view, Windows won not because it was more open, but because Mac innovation had stalled, allowing Windows to catch up. He uses Mac’s brief period of allowing 3rd party licensing as evidence that being more open did not help Apple grow the Mac business; quite the contrary, after Jobs came back and closed off Mac licensing, Apple begun its resurgence.

Over at Techcrunch, Michael Arrington chimes in by stating that the Internet was the unmentioned factor that leveled the playing field for Macs – because the Internet became the core application, it mattered less that Macs had far fewer compatible software.

To me, the question to ask is (and has always been) why did Wintel win in the 80s/90s, and why was the Mac able to stage a come-back in the 2000s. Open vs. closed is simply a popular variation on this core question, because it has been twisted by folks such as Wu to be the critical success factor. It is not.

Wintel was immensely successful due to its leverage of network effects – i.e. the utility of the product grew as more people used it. Microsoft Word is powerful because everyone uses it, and the .doc format is near ubiquitous; if only one person used Microsoft Word, it wouldn’t be that useful outside of creating documents to print.

Wintel was also a two-sided network made up of both hardware/software vendors on one side and consumers on the other. This further reinforced the network effects on the consumer side.

The fact that Wintel chose to be “open” at the hardware layer (can be installed on any IBM-compatible PC) certainly helped drive adoption, but does not itself create network effects. The simple counter-argument is iOS – iOS is certainly “closed” at the hardware layer (exclusive to Apple’s products), but that does not prevent iOS users enjoy the network effects of iOS-exclusive apps (such as Instagram, which for a long time was iOS-only; another example is iMessage, which will probably always be exclusive to iOS).

Pre-Internet, the core application of computers were productivity applications such as Office, and Microsoft Office was (and Lotus 123 etc., before Office) exclusive to Wintel. In a sense, it is a bit of a chicken and egg problem – Wintel’s “openness” to hardware vendors drove OS market share, which in turn amplified network effects of the most popular applications on this platform, which in turn lead to more OS market share. It was a great, virtuous cycle.

It’s hard to say what choices Jobs would have made had he stayed at Apple in the late 80s; it’s a convenient side argument that Apple lost the 80s/90s platform wars due to poor business leadership, however I find this side argument to be often distracting.

Moving on to the late 90s, Arrington is correct in stating that the Internet leveled the playing field. Specifically, as the Internet became the core application, it removed the network effects exclusive to Wintel thanks to Office and other Windows-exclusive software. (Jobs’ successful negotiation to get Microsoft to develop Office for Mac is also Apple’s attempt at leveling the playing field.) And ever since then, network effects have had diminishing influence on PC platform wars – this is the underlying reason why Macs could stage a come-back from low single-digit market share; the beautiful execution (consistently excellent hardware/software iterations) also certainly helped.

As a corollary of this observation (diminishing network effects due to the Internet being the ultimate cross-platform application), we can predict that in the mobile platform wars, despite the seemingly dominant positions of Android and iOS, it is certainly possible for a late-comer (such as the new Firefox OS, and/or other new entrants) to enter the market and capture significant value. However, the success or not of those mobile OSes will not be determined by whether they are “open” or “closed” – by that measure, we can certainly already declare Firefox OS as the winner. The next few years in mobile will be very interesting.