A new paradigm seems to be emerging in the wireless handset market...
It used to be the war of brands in the early markets, Nokia Vs. Motorola Vs. Samsung Vs. LG ... People made their choice of a phone on the basis of the brand, need and functionality in that order. This started changing, with innovations in industrial design, i.e. better looking phones, the paradigm shifted to a combination of design and functionality with the brand now sharing priority with these criteria in the decision hierarchy.
With the advent of the software powered smartphone, a new paradigm is emerging - that of the Operating System! With the emphasis more on the software platform and application availability, it looks like every manufacturer worth his/her salt is pushing for a proprietary OS that can be independently controlled, distributed and attract a slew application developers for a sustained competitive advantage in the market.
Of special interest is the story of Apple and Google. Two firms that chose different OS models in line with their strategies to capture a large part of the market share. While Apple went proprietary, they made no mistake on the part of application development. The support shown by Apple to early application developers for the iPhone has paid rich dividends. It did not matter whether the core Operating System was Open-Sourced or not (incidentally these two share the same initials OS ... ;) ... Perhaps this new paradigm can be called the OS2 paradigm, with an Operating System and an Open-Source application development strategy).
Google went one step ahead and Open-Sourced their operating system and application layer completely while making it available for all mobile handset vendors. The Google Android platform had arrived. This seemingly attractive option for vendors came with its own perils. Whilst the code was Open-Sourced, the usage of the code in devices for sale to the customer was controlled by Google. What seemed attractive at first as an Open-Source alternative and possibly the ubiquitous way ahead for smartphone manufacturers may not be the only way ahead.
Smartphone manufacturers are in a certain sense business smart and know that their competitive edge lies in differentiation. If everybody were to offer an Android or a WinMoble phone with nearly the same look and feel of the User Interface and User Experience, where did the differentiation for the manufacturers brand really lie? The risk is the manufacturers brand taking a backseat in the face of the larger brand of the Google touted Android or WinMobile.
What handset manufacturers are probably scared of is to have a single OS (be it Android or be it WinMobile) take precedence over the brand which would mean that the pie (smartphone market) could easily be divided equally.
This is clearly coming out in the strategies that are coming out of all major manufacturers. PALM went ahead and developed WebOS (perhaps the biggest reason why HP bought them out). Samsung has its own smartphone platform dubbed as BADA. RIM has always had its own OS. LG depends on opensource Linux. HTC is talking of setting up its own Operating System.
What is clearly emerging is that handset manufacturers wish to keep the market fragmented from a business perspective. They want to own and control an OS that allows them to differentiate their phones and attract the application developer community. The future business direction of these companies could be driven by the need to maintain competitive advantage in the operating system.
How does this affect hardware vendors for smartphone handset manufacturers?
Handset manufacturers would like to prefer a standardized Operating System on smartphones, since this reduces their costs and also reduces the strain on the development organization to support multiple software platforms on the same hardware. The direction in which the market is moving could prove to be a potential risk if customers start demanding full system support for all available software platforms.
There are three ways to mitigate this risk at the hardware vendors end ...
Option I: The costlier and more complex option of supporting all the available software platforms.
Option II: The more balanced approach of picking and choosing the right software platforms to invest in while totally ignoring the others.
Option III: A mix of internal and external development on the vendors hardware - internally invest in and work on the most promising software platforms and outsource the development of the other software platforms.
There are a number of challenges in coming up with the right decision amongst the available options -
While each of these options have their positives and negatives, is a tabulation of positives and negatives pitted against the corresponding costs the best way ahead for hardware vendors to make their decisions?
What is right from a market strategy point of view? Will the company's view of the market strategy pay off or will the market go completely to the contrary? How can the decision of picking the right Operating System Platform (for options 1 and 2) be made? Are current market pointers sufficient to indicate future trends?
Will a strategic tie-up with the software platform vendor be beneficial in the long run, how painful would the relationship be in case it is unsuccessful, or for that matter even if it is successful!
An interesting thing to note is that while handset manufacturers consider the upstream activity of developing Operating System Software to be a vital part of their competitive advantage, the actual manufacturing of the semiconductor chips required to run these handsets is not seen as a strategic advantage to have in-house. This is most likely due to the higher fixed and operational costs associated with the semiconductor manufacturing business and also the high level of technical expertise that is required to run the business. The real value as perceived by the customer lies in the tangible things that the customer can feel and use as a part of the product which include the user interface and applications exposed to the customer. The underlying hardware is not visible to the customer and is therefore not very high on the list of must haves for handset manufacturers.
Option III: A mix of internal and external development on the vendors hardware - internally invest in and work on the most promising software platforms and outsource the development of the other software platforms.
There are a number of challenges in coming up with the right decision amongst the available options -
While each of these options have their positives and negatives, is a tabulation of positives and negatives pitted against the corresponding costs the best way ahead for hardware vendors to make their decisions?
What is right from a market strategy point of view? Will the company's view of the market strategy pay off or will the market go completely to the contrary? How can the decision of picking the right Operating System Platform (for options 1 and 2) be made? Are current market pointers sufficient to indicate future trends?
Will a strategic tie-up with the software platform vendor be beneficial in the long run, how painful would the relationship be in case it is unsuccessful, or for that matter even if it is successful!
An interesting thing to note is that while handset manufacturers consider the upstream activity of developing Operating System Software to be a vital part of their competitive advantage, the actual manufacturing of the semiconductor chips required to run these handsets is not seen as a strategic advantage to have in-house. This is most likely due to the higher fixed and operational costs associated with the semiconductor manufacturing business and also the high level of technical expertise that is required to run the business. The real value as perceived by the customer lies in the tangible things that the customer can feel and use as a part of the product which include the user interface and applications exposed to the customer. The underlying hardware is not visible to the customer and is therefore not very high on the list of must haves for handset manufacturers.
What are the emerging trends in the market for handsets?
One of the smarter things done by the handset manufacturers is the development of unique User Interface software that has a strong association with the brand, eg- Nokia's S60, S40, HTC's Sense UI, LG's S6 UI platform etc. With the uppermost layer of software under their control, the differentiation possibilities are almost maximized. The reason why i use the term almost maximized and not maximized is because the maximization of differentiation comes if the lower levels can be standardized to meet all the functional requirements of the upper levels. If something that differentiates the upper level of software is not available in the lower layer of the software, there there is no real differentiation possible. This is possibly the reason why all handset manufacturers would want to have an underlying Operating System of their own.
The main risk that handset manufacturers might face is the lack of interest that may be shown in porting the proprietary system onto specific hardware platforms by the vendors. What if Qualcomm refuses to port Samsung's Bada Software OS platform onto its Snapdragon hardware platform in the belief that the maximum value for Qualcomm is derived from the porting of Android on Snapdragon. The opportunity associated with this risk lies with the hardware vendors, if there is a segment that is not served by a particular vendor there is always scope for competition to come in and port the custom software platform onto their hardware.
Concluding Thoughts
All in all the fragmentation of the hardware and software platform in the mobile handset market may be inevitable.
Whereas Google is seeing a surge in demand for the Android software platform this surge can be sustained only if handset manufacturers continue to see value in having a unified system like Android and avoid excessive investments in their internal Operating Systems and software platforms. Google's success would also depend on their ability to simultaneously entice semiconductor vendors to port Android onto the platform and sell a good value proposition to the handset manufacturers. The adoption of Android applications in the market and the subsequent popularity and indispensable predisposition to the customers of this platform could also prove to be a critical factor in locking in both handset manufacturers and semiconductor vendors to the Android Software Platform.
Google might run the risk of being a "staging" platform used by the handset manufacturers till they have developed a software platform of their own. However the development of a mature application market will ensure that the demand for Android phones will continue to spur handset manufacturers to have an Android offering as a part of their product portfolio.
2 comments:
nice.. i attended a paper presented in pgsem where the team said smart phones are yet to get a dominant design..
and they probably will never get one ... not in the near future, it will kill any form of market differentiation and advantage for the players in the market!
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