mobile

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.

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

Last quarter, Samsung’s net profit from its mobile division alone exceeded Google’s total profit from all operations (including adwords).

— dustin curtis (@dcurtis) March 14, 2013

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:

Indeed 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:

Does 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.

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.