-
The most widely deployed mobile virtualization solution
Data Sheets
Open Kernel Labs Blog
May 26, 2010
Lead, innovate or assemble: how software is changing the macro-economics of mobile handsets
OK Labs welcomes guest blogger: Andreas Constantinou, Research Director, VisionMobile
How naive! Mobile industry connoisseurs used to smirk at the notion that the mobile industry was any similar to the PC world. How can the two industries be any similar when the software, services, channels to market, operator control, regional economics, and range of experiences were all so different?
That is so last decade. The march of software has irreversibly changed the economics of value in the mobile industry. Google’s Android and Apple’s iPhone have caused disruptions that threw all analyst predictions off the chart.
Industry pundits used to project a linear growth for ‘open’ operating systems (Symbian, Windows Mobile et al) that saw them take over an increasingly large share of mobile handsets sold.
And then it happened.
Google’s Android, an operating system that was greeted with scepticism in 2008 become a launchpad for just about everyone working within the mobile industry.
Network operators/carriers saw Android as the recipe for developing iPhone clones at less-than-iPhone prices. For operators, Android represents an opportunity to reduce the handset subsidies (running at circa €300 per subscriber) while maintaining differentiation and exclusivity.
Handset OEMs saw in Android the opportunity to innovate away from their legacy real-time operating systems, while still getting operators to pay for it with NRE fees. The top-2 and top-3 handset OEMs, LG and Samsung, who used legacy real-time OSes for 90% of their high-end phones in 2009 have now 10s of Android projects in the pipeline for 2010-11.
Software developers saw the opportunity to enter the mobile ecosystem of downloadable apps – in the role model set by Apple’s App Store – in the most approachable and developer-friendly platform ever created for mobile.
But the biggest changes are yet to appear.
Android has triggered a mass arrival of 10s of ODMs from China and Taiwan eager to create me-too touch-screen handsets. Qualcomm and Mediatek, the chipset vendors powering the majority of feature phones today have launched or are preparing to introduce out-of-the-box Android designs that reduce the time to market for Android handsets to 6-9 months (or circa 3 months once Mediatek’s design hits the market). Platform development for Android has dropped to the $300 per engineer-day mark, while major outsourced development centers are being set up in Asia dedicated to Android handset development. All these developments will allow Android touch-screen handsets to hit the €150 mark retail price.
The new world order: Lead, innovate or assemble.
The developments triggered by Android have made it possible to replicate the economics of the PC industry, leaving mobile industry insiders dumbfounded. Last decade’s rules and role models no longer apply. Instead there are three role models emerging for handset manufacturers in the world of commoditised software: leaders, innovators and assemblers.
Assemblers. Dozens of contract manufacturers can now take Android and deliver fully-featured, high-end, wow-factor handsets at made-to-measure requirements, but at economies of scale only enjoyed previously by top-5 manufacturers. Think iPhone me-too experience at €150 retail price.
Innovators. This price pressure will force the top-5 to innovate-or-die. With the innovation moving out of the pure user interface domain, widgets or touch innovations are no longer the ‘wow’ factor. To claim higher prices at €300 (and a respectable margin above the BOM) the top-10 OEMs will have to innovate. Handset innovation lies in three elements: firstly, novel industrial design (think Nokia’s ‘lipstick’ or sports handsets of 2006) that will break the boring mould of today’s form factors and plastics. Secondly, novel use of sensors that will enable user interactions only imagined so far. Thirdly, use of shelf space within the commonly used applications (idle screen, menus, settings, browser chrome, app store) to monetise from third party content.
Leaders. To reach the top-tier of handset pricing (circa €500) handset manufacturers have to deliver new product experiences. This is the privilege enjoyed by Apple, RIM (and Amazon Kindle to an extent) who have integrated hardware, software and services under the same roof. You can buy Mediatek-powered iPhone clones in China (Shanzai in local speak) for $75, but the experience is laughable to an iPhone user. Only by controlling all components under the same roof can a manufacturer deliver new product experiences that can command top-tier retail prices.
Naturally, emerging markets where retail prices are at circa €50 make up the majority of the mobile handset market – at least revenue-wise. Profit-wise, very few OEMs have the economies of scale in their supply chain to hit a €50 retail price while making a profit – and Nokia is the role model here.
The picture that emerges for the mobile handset market in 2015 (the predictable future) is surprising in many ways. The top 5% of the market will command as much revenue as the bottom 50%, but with a higher profit – Apple and RIM today bring in around 55% of the industry’s profits according to Deutsche Bank. The middle two segments (what some observers call mass-market smartphones) will generate much higher revenues.
The mobile industry is starting to look scarily close to the PC industry, both in terms of business models and profit vs revenue patterns.
What do readers think? Is the PC future for mobile inescapable?
- Andreas
Andreas Constantinou is Research Director at VisionMobile, a market analysis and strategy firm.
Posted by Andreas Constantinou on May 26 at 03:18 AM
blog comments powered by Disqus
About Andreas Constantinou :
Guest Blogger Andreas Constantinou, Ph.D., joins us from VisionMobile. As Research Director, Andreas oversees the research, advisory and industry mapping projects at VisionMobile. He has nine years experience in research, development, and strategy in mobile, specialising in the handset ecosystem, software strategy, open source, service delivery, SIM cards, and device management. According to Twitter, Andreas is: Futurology ambassador. Mobile strategist. Founder, VisionMobile. Dad. @andreascon
Recent Entries:
Personal Site: