mobile

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.

2012 / 2013 tech thoughts

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Here’s a quick and dirty post to capture some of the thoughts that I’ve been brewing.

2012 to me was a year of continued trends in tech. Looking back, I couldn’t name any major disruptions in the major consumer-facing sectors of tech. The continued trends that I see are:

  • Rise of tablets vs. decline of PCs in all form-factors. The “tablets as cars vs. PCs as trucks” metaphor seems to be materializing everyday
  • Continued penetration of smartphones
  • Within smartphones, the platform wars mostly continued previous trajectory. Apple maintained, if not grew, its overall market share and leadership in the higher end segment. Android market share continued to be fueled by low-end devices (essentially, Android-powered smartphones at price points that replaced feature phones, and probably used as feature phones, if the mobile web usage data is any indication). Blackberry / Windows Phone remain on the fringe, while there continues to be new platform entrants (Tizen etc.)
  • In terms of apps and services, perhaps I’ve not been paying close attention, but there wasn’t really a defining new service that broke out (would Pinterest count? I don’t use it enough to comment). (Obviously not every year would there be a new Google / Facebook / Amazon / Twitter)
  • For buzz-words, “cloud” / “big data” are not new concepts by any measure, but they have gone more mainstream
  • crowd-funding (Kickstarter) got a lot more mainstream, but I personally would lump it together with the rise of angel investing a few years back as niche alternatives to raising capital. It’s a compelling alternative for very specific teams

Looking ahead to the rest of 2013, these are the things that I think may define the year:

  • Intensified competition to be the “center” of the living room, from all angles. Maybe Apple will do a real TV. Current TV brands will also further their “smart TV” offerings. There’s also a whole host of set-top box alternatives, anything from dedicated streaming boxes to new gaming consoles such as Ouya / the “Steam Box”
  • Related to the above, will this year be the year that the mainstream TV content model first see major disruption? There’s been a storm brewing for the past few years, but we’ve yet to see what the storm actually looks like. With every year more and more pieces seem to be coming together though
  • In mobile, I don’t expect smartphone landscape to change much, but it would be extremely interesting to watch how Android vendors compete against each other. Would Motorola stage a comeback / would Google become more determined to own more of the mobile value via hardware sales? Would Samsung make major platform decisions in response?
  • In tablets, I also don’t expect the big picture to change much, but would be interesting to watch how Android tablets continue to materialize and compete against Apple (as well as each other)

 

“Open” vs. “Closed”, another example

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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…

The Legacy of Steve Jobs

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Like most people interested in technology and business, I picked up a copy of the Steve Jobs biography by Walter Isaacson. It is a good book and will mostly satisfy any outsiders’ curiosity at the man’s life, his idiosyncrasies (there were many), his faults and fallacies, and his achievements. What I want to talk about here is his legacy.

He was not a perfect person

FIrst off, and just to clear the discussion, Steve Jobs was clearly not a perfect person. He had many issues. He was a jerk a lot of the time, to a lot of people. He liberally took credit for other people’s ideas. If you hated him before, the book will not change your opinion of the man.

But he also had many strengths. He was a natural marketer and negotiator. He was diligent, and learnt through his failures to be a great manager. And of course he was a visionary, in the truest sense of the word. This discussion, however, is not about how much I admire him (or not), but what I took away as key lessons from his endeavors.

“Open” and “Closed” are both valid choices

One of the most straightforward take-aways from Jobs’ work in the past 10 years is that vertical integration remains a valid business model. Tech fans like to frame this debate as “Open” versus “Closed”, and associate all kinds of philosophical and ideological meaning with it; and clearly Jobs himself had some ideological bias towards “Closed”, but at the end of the day, they are both perfectly valid business choices.

As my favorite business school professor likes to say, no company is 100% “open”, nor is any company 100% “closed”. “Open” and “closed” are a set of strategic trade-offs, just like any strategic decision is. For Apple, “opening” up their platform, such as allowing other hardware vendors to make Mac clones (or iOS clones), clearly has major pros as well as cons. The question is does the trade-off fit with the broader set of strategic choices the company has made – in Apple’s case, “opening” its software platforms clearly contradicts with its vertical integration strategy, and causes it more harm than benefits.

Even Apple itself provides a great example of why sometimes it might make sense to go the other direction. Jobs strongly resisted porting iTunes to the Windows platform. His argument was that by bundling iPods with Macs via the iTunes software, he could lead to additional sales of Macs. This argument had some merit, but it also was clearly inhibiting the growth of iPods as an individual product category. In the end, Jobs was smart enough to be pragmatic and allow his team to develop iTunes for Windows – “hell froze over,” as he would say.

This pragmatism, and the realization of “open” and “closed” as trade-offs (rather than which is better in an absolute sense), is extremely important, as an organization would otherwise be limiting its own strategic direction. For example, we should not be at all surprised if after the Google-Motorola deal is complete that Android becomes a much more “closed” offering.

The (revised) 80/20 rule – the 20% that makes a product “insanely great” takes 80% of the time[1]

One of my main revelations from the biography was just how hard it was to get something perfect. For example, it was a ridiculous amount of work for Steve Jobs to get the music labels onboard with selling their music on the iTunes store, and this had little direct relationship with the sales of iPod hardware. But Jobs believed, correctly, that making the entire user experience with mp3s as painless as possible would reap great rewards in the long run.

It was certainly eye-opening to me to see how difficult it can be sometimes to make progress on the smallest things. To execute against a simple strategy, such as “get publishers to launch their books and magazines on the iPad,” it took Jobs and his senior team countless pitches and meetings.

As most companies don’t spend the 80% of work it takes to get that last 20% right, they often look at what Apple has been pulling off and see magic while showing disbelief. That was the industry’s reaction when Jobs pulled off the music label deals for iTunes. That was the industry’s reaction when he announced the iPhone. And clearly, almost two years after the iPad was announced, competitors are still “flummoxed” in terms of a response.

Focus is key

A corollary of the previous point is that focus is critical. (Larry Page should take the advice that Steve Jobs offered him very seriously – focus on five products.) From a management theory perspective, this is nothing new, but few organizations are as relentless as Apple is at its execution.

Apple’s entire product portfolio can be laid out on one table. It is only because of this, that Apple’s senior management can have enough time to make each one of those products great as opposed to good.

On the flip side, the inability to focus is also why incumbents give startups opportunities to establish a foothold in the market. For example, from a pure strategy perspective, there are few reasons why Facebook cannot completely own the mobile check-in space (Foursquare), or the daily deal space (Groupon), or any of the other hot social trends. Or, in the case of Google, why they cannot completely shut out Kayak, Yelp, or any other vertical search providers. Yet both Facebook and Google clearly haven’t been able to do so. Leaving aside many other factors, the 80/20 rule above is one major explanation.

If Facebook focused exclusively on check-ins, or if Google focused exclusively on one or two search verticals, there would be little that these hot startups can leverage to compete. But focus is hard because it means saying no to incremental growth opportunities and leaving money on the table. And when a company feels it is invincible it is hard to say no. It took Steve Jobs ten years in the “wilderness” and Apple 90 days from bankruptcy to realize how valuable having a focus is.

The organization is his greatest legacy

The last revelation I had from reading the book is still to be proven, but it could be the most profound. During Jobs’ second stint at Apple, he had a clear vision that went beyond building great products and making Apple the best technology company globally; he wanted to build a lasting organization.

Ironically, one of the biggest criticisms that people have for Apple is that it is a one-man show. And over the years investors have continually undervalued the stock because of this. Steve Jobs certainly didn’t help himself in this regard, due to his inclination to take credit (as the book showed, Jony Ive was at times deeply unhappy about not getting enough credit). But consequentially this may also make it all the more magical when people realize what a lasting organization he has built.

What is magical about Apple is not its products. Its products are the output of a process, and it is that process (and the organization which embodies it) that is magical.

Wait, critics of Apple say, just wait until it has a flop – Apple is so hit-driven that all it takes is one flop. Interestingly, people said the exact same of that other Steve Jobs creation – Pixar. Pixar has defied all conventional wisdom in the film-making industry, by making hit after hit after hit after hit[2]. Pixar’s process of creating its products has already become textbook material.

Apple’s process is just as powerful. It is a process that defies conventional business thinking (“open” trumps “closed”?); it is a process that combines a passion for perfection with a relentless focus; and it is a process that goes beyond the influence of any individual[3].

Obviously, the jury is still out on this one, but I have plenty of confidence that Apple will continue to surprise and delight us, for many years to come. This will be the biggest test of Jobs, and it will be by far his biggest legacy.

[1] Indeed, this is perhaps the counter-definition of 80/20, as many companies would make it a strategy to be content with achieving 80% greatness with 20% work, in the name of efficiency.

[2] Granted, Cars 2 looks uninspired, but I will not pass more judgment as I haven’t seen it or the original Cars

Regarding Amazon’s Kindle Fire…

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There’s only a few things I would say.

First, Google, not Apple, should be very, very concerned about this development. Amazon has basically taken Google’s engineering resources / output and said “thank you for your free work, we’ll take it from here.” How many times did Amazon mention Android in the device description? Does the device look at all like an Android device? Does it offer any Google services by default? Will Google have to pay to be the default search on a tablet that was designed using Google software (think about the irony in that)?

Second, this leaves most other tablet vendors still scratching their heads about what to do, and this is the best example of asymmetrical competition. I would elaborate, but John Gruber had this excellent paragraph from his post that sums is nicely already:

Attack from a position of strength. Build on your previous successes. That’s what Apple does. That’s what Amazon is doing here. The other guys — the Samsungs, HTCs, Motorolas, RIMs — can’t match Apple’s hardware design, don’t even try to match Apple in terms of original and differentiated software, and struggle to match Apple’s prices because they don’t have the economy of scale advantages Apple does. Those guys can’t match Amazon either, because they have no content to sell. Amazon can give away the razor because they’re already in the business of selling blades. The other guys don’t even have blades to sell.

Can Chromebook be more than a “noble experiment”?

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David Pogue’s review of the new Google Chromebook hardware by Samsung calls it a “noble experiment”. The question is, can Google’s Chrome OS ever be more than that?

For one thing, if hardware vendors and distribution partners find consumer interest lacking, Google will have to sweeten the incentives for them to keep churning out hardware and pushing it through retail. Pogue’s review does a very good job summarizing the current issues with the offering, which will likely tank sales; the bigger question is whether Google’s philosophy and vision with Chrome can materialize in the broader ecosystem – that is, a browser as the OS paradigm of computing. This seems quaintly a very desktop centric view of the world; with all kinds of mobile devices gaining broad adoption, why should we continue to expect the browser at front and center of how consumers access the Internet?

There is no destined outcome in terms of the “native” versus. “browser” “war”; this is dependent on how the players in each camp fight for ecosystem support and consumer adoption. And that’s where Google’s own hedge against Chrome – Android – is the second major factor against Chromebook’s potential. The managers running Android and Chrome will probably characterize their respective businesses as in a “friendly competition”; however, when they are competing in anything from internal engineering resources, corporate budgets, to external hardware partners and developer support, it shouldn’t be a big surprise that outsiders will see a lot of conflicted messages, and therefore question the strategy.

Count me a skeptic.

The flaws to Google’s Android strategy

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Kyle Baxter has written an excellent post dissecting Google’s Android strategy. On the whole I agree with most of his analyses, but I would like to point out what I see to be flaws in the strategy. I don’t claim ownership to all of the following; a lot of it was covered in the “Strategy for IT Firm” MBA course I took last semester at the Haas School of Business, UC Berkeley.

It’s true that Google has a strategy of commoditizing adjacent markets to turn them into ad-based businesses, which falls into its sweet spot. Many of Google’s most successful products besides its core search are of this nature: email, maps etc. GIving away Android for free is certainly commoditizing the mobile handset market: of the 300k daily activation number which Google touts, people speculate a large portion are what analysts traditionally call “unbranded” or “other” phones. In general this conforms to Google’s strategy; however, the flaw here is that in my view Android is disrupting other branded manufacturers like Nokia / Samsung / Motorola far more than it is challenging Apple and iOS devices. In other words, it may appear that Android is mainly a counter to the iPhone, but in reality it is killing Apple’s main branded competitors.

Allow me to expand on this point, because it probably appears counter-intuitive. Before Android powered smartphones hit the market, Apple was certainly in a league of its own with the iPhone. While it was rapidly capturing share of device profits (the famous 5% unit volume – 40% profit share charts), the incumbent device brands – Nokia et al. – still had the comfortable mid to low end market volumes, which would give them time to develop competing OSes. Now along comes Android, which, while it gave them a quick boost in terms of time to market of credible iOS challenger devices, also opened the floodgates to a whole range of unbranded competitors. These new comers – Huawei, ZTE etc. – play the same volume game as Nokia / Samsung et al. And we know so far Samsung / Motorola have not drastically reversed their financial performance thanks to Android – so what’s the next possible scenario? Would it be possible they continue to slip in unit volume, and be weakened further at the onslaught of the Android clones?

At the same time, I think Apple is sufficiently differentiated from the unbranded players  in terms of value propositions (very different consumer segments), so the Android clones do not pose a significant threat to Apple.

The flaw here is that Google did not limit who could use Android – a complete lack of platform control. If Google’s strategy does indeed include undermining Apple, it should have limited Android to a handful of brands, so they could compete effectively with Apple. Furthermore, I would also argue that Apple’s primary issue currently is not Android, but its own supply chain and distribution restrictions (e.g. AT&T exclusivity). The big fanfare of Android activation numbers have done little to stop iPhone stockouts all over the world – in China where the iPhone 4 is obscenely priced, supply is still tight. Admittedly I don’t have conclusive data on iPhone supply constraints – but if we take this assumption as true (and there are certainly indicators and proxies in favor of this), it would show that Android has done very little to halt Apple, and is causing far more headaches to Samsung etc.

The second fundamental flaw is that going back to the original strategy, carriers still stand in the way of Google’s profit realization, if and when the mobile devices are completely commoditized (the death of Apple and RIM). Mobile network operators have far greater influence over consumers than wireline operators – in most cases, people choose a mobile operator first before choosing a handset (Apple being the prime exception / disruption), whereas you choices over which wireline operator and which computer brand to buy are completely separate decisions. Because mobile operators “own” the consumers, market power dynamics dictate that Google cannot expect to extract substantial profits. I know this sounds abstract, but until Google can demonstrate to operators that “I can make your customers leave you for another operator”, operators could and should squeeze mobile advertising profits out of Google. Again, Google’s lack of control expedites this – Verizon can sign up Bing as the default search on its phones etc, but there also are many other ways to play this profit squeezing game.

Of course, Google could hope for a “Wintel”-like end-game, where they dominate the OS space and split the spoils with the operators; but operators can foreclose that outcome by actively playing one OS off another. I’m sure strategists at the operators are already plotting this out, and I wouldn’t be surprised if Nokia, which has long been an outsider to the US market, is called in by the operators to facilitate a bigger and better OS war.

Why predictions of the iPhone’s death (at the hands of Android) are greatly exaggerated

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The comparison of the growth rates of the iPhone and Android phones is continually a topic of hot debate, in no small part propelled by the highly vocal and emotional fans of both camps. It almost seems conventional wisdom that iPhone vs. Android will be Mac vs. Windows, Part II.

Personally, I believe that on so many layers, this topic is really a non-topic. It provides entertainment value, no doubt, in the form of daily tech soap opera (bloggers jumping on every new data point released and typically extrapolating it beyond meaningfulness to arrive at flame-bait headlines). But from an industry analysis point of view, or a company analysis point of view (scrutinizing Apple / Google), the market share comparisons are really just one data point – it’s meaningful, but certainly not to the degree that the blogosphere claims it to be. Apple’s future is not in jeopardy if iPhone loses pole position to Android.

Over at Wired, Fred Vogelstein takes a crack at this topic. His main point is that if you sum up all the iOS devices (iPhone, iPod Touch, iPad), they are still outselling Android, by as much as 42%. While this may be encouraging to the Apple camp, there is no reason we can expect this to hold, especially when other Android powered devices (e.g. Android tablets) eventually hit the market.

I don’t have any doubt that Android devices will outsell iOS devices. If it hasn’t happened already, it will happen soon. There is no reason to believe an OS from a premium manufacturer (Apple) with an extremely limited range of SKUs can outsell, on a pure volume basis, an OS that is free to use and which is backed by some of the biggest consumer electronics companies in the world. On a dollar value basis, it might be a different story, but still not that likely. On a dollars of profit generated basis though, highly possible (Apple generates more profit than rest of mobile industry combined, with only 3% unit volume share).

That said, the main reason people are obsessed with these market share numbers seem to be the underlying assumption that iPhone and its eco-system will lose its draw to developers, and by extension to consumers, if it is relegated to a minority market share. I think there are at least a couple of counter-arguments to make here.

First of all, being the minority market share platform does not translate into a lack of quality apps, to the extent that it will hamper mass-premium consumers’ (Apple’s core segment) interest in the platform. For example, if you flip the argument over the number of apps in the Android vs. iPhone app stores on its head, you may well say that even though Android has a smaller number of apps, the eco-system is already sizable enough, so that for any functionality there will be “an app for that”. Another example would be none other than Macs – what’s the market share that Mac OS holds in all personal computers? Single digits? Do mainstream Mac users complain about the lack of quality apps (note the emphasis on mainstream – specific categories like hardcore gaming is lacking on the Mac, but even that is seeing improvement)? Holding these two examples, I would argue that with the developer community Apple has already amassed, it would be hard to foresee a drastic dying out of quality apps, even if Android floods the market.

Secondly, if you take a step back and look at the broader trend in computing, it is definitely headed in the direction of platform-agnostic. Some tech purists would even decry the whole notion of apps – everything should be realized on the browser, over the web. If you look at the desktop space, there is indeed the trend of “fat” clients (local apps) losing out to “thin” clients. Indeed, Google is perhaps one of the biggest proponents of this – its whole challenge to Microsoft is based on the browser. If we believe that the same trend will apply to mobile devices, then the apps craze we are experiencing really is just a transition phase – at some point, most of the apps you want would be delivered to you on the browser, as opposed to an app you download (again, Google’s Gmail mobile version on the browser is arguably better than Apple’s Mail app). And let’s give credit where credit is due – when Apple launched the iPhone in 2007, Steve Jobs’ initial vision was to have web apps (browser-based apps) instead of local apps. The app SDK and the app store only came out a year later, due to popular demand. (So you could say that Jobs had already envisioned an end-game where the browser was the point of delivery for apps, not the app store – his vision was perhaps just ahead of its time.)

If you sum these two arguments together, the bigger point is that iPhone will not lose its richness of apps in the face of Android capturing majority market share – it’s big enough already of a market so that there will be quality apps developed, and apps will be platform-agnostic anyway down the road. As long as Apple continue to bring innovation to its devices, it should not be overly worried about losing market share leadership – its whole strategy is founded on premium products, which implies that it won’t be market leader from a revenue / volume perspective. That’s why I wrote the headline of this post.

PS: Also, for people who continually say this will be a rerun of Apple vs. Windows in the 80s, please pause for a moment and reflect on the Mac’s continual resurgence over the last decade. This is again very indicative of the broader trend. In other words, one could almost claim that the “network effects” so famously championed by Wintel is close to becoming irrelevant, because the Internet has leveled the playing field for the small market share OSes.

PS2: And even if we are to talk of the platform wars of the 80s, we should get the facts straight. The following is my reply on a Quora question (similar topic really) awhile back:

First of all, it’s not really windows vs. mac, but PC vs. Mac. I would say by the time windows 3.0 came out, the platform war between PCs and Macs (at least the first war, not including Mac’s resurgence in recent years) was already over.

If you look at this article on Ars Technica, http://arstechnica.com/old/conte…
as early as 1986 PCs already had over 50% market share of computers, and it over-took the mac platform’s shares a few years before that. So in that sense, there never was a windows:mac war, at least not until very recently.

I think one key distinction between the platform wars of the 80s and android:iPhone is that in the 80s it was primarily driven by b2b, not b2c. IBM was late to the personal computers space, but they were the driving force behind making personal computers legitimate for business – they could go to a sales pitch with a business client with a perhaps inferior product but still sell it, and they could generate serious developer interest in developing for the PC. The killer apps of the 80s were spreadsheets and word-processors, sold to businesses. Apple could have better versions of such products on macs, but they couldn’t sell to businesses as quickly as IBM and clones like Compaq could, which is dictated by company structure and channel strategy – they are positioned as a consumer products company, and the only verticals where they made serious progress were education and publishing (where their products were clearly far far superior). That’s where the network effect kicked in and made Macs a niche.

Flash forward 25 years, and smartphone adoption is primarily driven by consumers, not businesses (blackberries being the exception). This is in Apple’s core area of expertise. It will still be challenging to fend off a group of competitors’ collective efforts (Samsung, HTC etc.), but as long as Apple retain a significant portion of the market, it will be in good shape. Apple doesn’t need to be market leader to be hugely profitable and have a sizable eco-system of 3rd party apps etc. – just look at macs today, as a general consumer you have majority of the apps you need to be happy with it (games being one major exception, which is also therefore a good business opportunity).

So back to your original question, I’d say Android:iPhone will play out very differently compared to Windows:Mac. Android might still end up with a more market share, but iPhone will have enough share and a big enough eco-system so that Apple won’t have to go through the kind of existential challenge it had back in the mid 90s.