Google & Co. serve up old wine in a new bottle
| Monday November 5th 2007, Google, together with a number of industry partners, launched its new mobile venture, Android, under the bold headline: “INDUSTRY LEADERS ANNOUNCE OPEN PLATFORM FOR MOBILE DEVICES”. It sounds impressive, and certainly contains everything required to drive the press crazy and to publish numerous articles on how large industry players have got together to jointly launched an open platform. But haven’t we heard this story somewhere before? In this instance, the Open Handset Alliance (http://www.openhandsetalliance.com) knits together 34 companies who have bet on the mobile platform Android. The 34 players can be split into 4 groups: operators, chip manufacturers, terminal manufacturers and software manufacturers. Each of these is there for a different reason. 1) Operators have a desire to put pressure on the terminal manufacturers, not least Nokia, which has built up a leading position with a global market share now of 40%. Many operators believe that Nokia is too dominant. These operators’ sole wish is to boost competition on the terminal side, so that they can reduce the cost of purchasing new terminals, which they use to acquire customers with (by subsidizing them). These acquisition costs today account for 20-35% of operators’ total costs. 2) The chip manufacturers are represented by two successful players in the mobile market, Qualcomm and TI, along with Intel, which has long dreamed of success in the mobile world. Over the years, Intel has cooperated with several players and launched initiatives to this end. Qualcomm has only one intention: to ensure that the transition from GSM to UMTS takes place as quickly as possible – since it possesses a big part of the IPRs for the 3G world and makes a profit every time a UMTS terminal is sold. In fact, it makes so much money that Nokia has launched a number of lawsuits against Qualcomm for allegedly abusing its market position.Simply put, the chip manufacturers are here to stimulate the market for advanced terminals. The smartphone market accounts for totally 10% of the worldwide terminal market, and if they can get that percentage to grow, they can ship more advanced chipsets and increase the ASP of their platforms. 3) The terminal manufacturers are represented by Motorola, which has experienced a massive drop in sales and earnings recently and is struggling to get back into a leadership position, and Samsung, which historically has made mobiles with all types of operating systems present. Unlike other terminal manufacturers, Samsung has always been willing to try out new mobile platforms. Motorola has also deployed a number of different platforms – ranging from their own-developed one based on Linux to Microsoft and Symbian. However, the most interesting partner in the alliance is HTC, which has traditionally been Microsoft’s most important mobile partner. Now, the company has jumped into bed with Google, one of Microsoft’s main rivals. Is HTC sleeping with the enemy? 4) And then you have all the software manufacturers, with Google as the lead partner. All dream of getting a piece of the mobile cake. However, it’s one thing to declare the ambition of bringing the internet to the mobile and quite another to articulate what this means in practice. Players like Opera have for years been delivering browsers which make it possible to view websites on an ordinary mobile phone. But this doesn’t alter the fact that websites today are designed for 15” or 17” screens. In other words, websites have to go through a fundamental editing process to be viewed on a 2½” screen. Google and Co.’s message sounds good, but this will not change the fact that viewing traditional websites on a mobile is like watching porn through a peephole. It’s not surprising that Google is the prime mover in this initiative, considering how marginal a role in the mobile content market it plays today. All in all, this group consists of a good number of players who have one thing in common – that in spite of their big ambitions, they have always had difficulty getting the market position in the mobile world they dream of. At Strand Consult, we believe it will take more than cooperation of this sort to create a successful mobile OS solution. You can compare this cooperation to Apple’s iPhone ambitions, where the company declared a target of 1% market share in the first 1½ years. If the alliance wants in that sort of time to be 10 times more successful than Apple is looking to be, the target would have to be 100 million terminals using the Android platform. Let’s say they manage to achieve this, will this be enough to persuade application developers to move their focus away from the 900 million other terminals sold worldwide, and the installed base of 2.5 billion terminals? We don’t think so. The message is openness and ease The packaging of the message in terms of Open Software, Open Device and Open Eco-system came as no surprise to us. But what lies behind these words? Maybe we should ask Qualcomm, Intel and TI if they plan to reduce the prices on the chipsets they ship to terminal manufacturers worldwide. Or we could ask HTC, Motorola and Samsung if they plan to launch a series of cheap smartphones, where the savings on the hardware side will be to the benefit of operators and consumers. And we could ask Google if it plans to give away all its software and make no revenue from ads etc. The answer to all three questions is an emphatic No! All these players have an existing business model that they cannot change despite the launch of the alliance. Their goal is to get a share of the 1 billion mobile phone market, to increase the number of 3G phones in circulation and to ensure broader distribution of the services that each player makes a living out of supplying. This offering, therefore, can be compared to the ‘taste samples’ we get in supermarkets. The aim is to stimulate consumption of the sampled merchandise. None of the 34 companies in the alliance are doing this ultimately for the benefit of consumers. It’s to increase distribution of their services in order to make money for their shareholders. At Strand Consult, we think it was wildly misleading to package the message in the form of: “INDUSTRY LEADERS ANNOUNCE OPEN PLATFORM FOR MOBILE DEVICES”. We are talking really about a number of players, many of which have had an incredibly hard time making it in the mobile universe, now trying to get a share of the mobile cake on the back of the more successful players. But is this platform much more open than the others in the market? And will it actually be cheaper and easier to develop services for it, compared with the many other platforms in the mobile market? One thing’s for sure – it’s likely to be much cheaper and easier for small players to use new Java versions and the Standard Service Delivery Platform to make mobile solutions, than using what Google & Co. are betting on with Android. It looks familiar It’s useful to read the material sent out by the alliance and to study the various stated purposes of the different partners. What stands out most is that almost each partner is there for a different reason, and that the arguments they put forward are identical with the arguments they have used at the launch of previous partnerships. On February 19, 2002, for example, Microsoft and Intel launched a partnership based on the use of Intel Personal Internet Client Architecture alongside Microsoft’s Mobile Operating solution (http://www.microsoft.com/presspass/press/2002/feb02/02-19IntelWirelessPR.mspx). Intel’s stated goal was identical to the goal of the current alliance! Has nothing changed in five years? The same goes for the operators. Let’s just mention a few remarkable ones, such as the Java-based operating system Savaje, which was supposed to do battle with Symbian, Microsoft, Palm, etc. Besides a number of venture funds, that entity included Vodafone, T-Mobile and Orange as investors. The operating system never saw the light of day, and today Savaje is buried. Under the umbrella name Open Mobile Terminal Platform (http://www.omtp.org/), a number of operators and industry players joined forces in 2004 to create a framework for a standard application interface to ensure the easier and faster development of applications across different operating system and terminals. The main drivers of the initiative were T-Mobile, NTT DoCoMo, Telefonica, TIM, O2 and Smart. It’s hard to notice any difference between this alliance three years ago and the latest one, at least in terms of the stated ambition. Even the names are almost identical! In April 2001, Nokia, Motorola and Ericsson joined forces to create Wireless Village around a joint Instant Messaging (IM) solution. This partnership was later expanded to include more industry players (http://press.nokia.com/PR/200104/817796_5.html) and today Wireless Village has become the Open Mobile Alliance, or OMA. A simple search reveals that “Open Mobile” is a term used by most players in this industry for new solutions whenever they send out press releases. But history shows that open standards (in the mobile world) in practice means everyone can use the technology if they pay a royalty fee to the company that owns the IPRs for the solution. Nokia calls its Series 60 platform an open platform, just as all other suppliers of OSs do, when really all you’re doing is buying and paying for the technology they deliver. To summarise, the press release from Google & Co. is identical with numerous earlier press releases from most of the same companies involved in previous initiatives. At Strand Consult we call this, quite simply, old wine in a new bottle. The facts about mobile OS In recent years, mobile OSs have been on many people’s lips and a lot have even been introduced into the mobile universe. Today, around 1 billion mobile phones are sold Worldwide each year, and roughly 80% include a simple standard OS developed either by the terminal manufacturer or various partners. If you look closely at the players in this space, it’s clear that it’s bad business developing and marketing a mobile OS. In fact, quite a lot of the players have a very hard time making money. OS pricings levels in the mobile world are far removed from the PC world. A smartphone OS can be purchased for between $5 and $15, and the list of providers is long. Terminal manufacturers such as Motorola and Samsung, which time and time again initiate partnerships with different players, make it confusing to know what the OS strategy of the terminal manufacturers actually is. Try to make a list of Mobile OS manufacturers, and it would make you dizzy! Motorola and Samsung could be said to be promiscuous in their choice of OS supplier – they have tried out most OSs in the market without much success. To believe that Google & Co. can change these facts is naïve. It would mean a number of key terminal manufacturers having to bet on Android, which is in its infancy, as their only or primary platform At the same time, Google & Co. need volume to be able to change the application market. At Strand Consult, we believe the alliance will have a hard time striking deals with the terminal manufacturers that are successful today. Why should they let Google and its ad machine into their universe? Moreover, they would fear becoming marginalised by the larger parties behind Android who might eventually take control over the project. Is Android the next big hype? No doubt Google & Co.’s Android, with the help of good spin doctors, will get good reviews the coming days – hyped through the PR machines of the companies involved. It is already being more hyped than the overhyped i-Phone! However, it’s worth remembering amid all this that smartphones today are roughly only 10% of the overall handset market. The fact is that much of the good press Android has received, together with Google & Co., is based on a press release that looks very much like a reprint from an earlier period. A lot of people have forgotten to evaluate the historical facts and to look hard enough at the real reasons for these companies to partner up. At Strand Consult, we have a hard time seeing the difference between Android and many of the other “Open Mobile” initiatives that more or less all the same partners are involved in. And the fact remains that these partners have found it difficult to live up to the “Open Mobile” promises they have made in the past! To refer to Android as Open Software, Open Device and an Open Eco-system is stretching the truth too far. The truth is, it’s just one of many OS solutions in the market. It’s hard work going from good intentions to creating a product that’s successful and which revolutionizes the mobile market. Today, it’s a 1 billion unit market, and if Android is to be successful and change the foundations of the application market, it needs to sell at least 250 million units – a number 25 times bigger than the market size Apple is targeting. For this to take place, the smartphone market first has to explode in size. So what impact will Android actually have in the real world? At Strand Consult, we believe it will help increase the focus on terminal development, which in turn will mean that many terminal manufacturers will increase the number of models they produce, which again will stimulate sales, which will stimulate operator churn. In the end, the winners will be the ones sitting on the IPRs needed for 3G phones, who will be laughing all the way to the bank. |
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