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Smartphones’ ecosystem dilemma
Why is the Motorola Droid apparently gaining traction in the smartphone market, when Microsoft and Nokia are failing so miserably?
The Droid, built on Google’s Android mobile operating system, sold 250,000 in its first week on the market. That’s way behind the 1.6 million iPhone 3Gs sold in the first week after its launch, but it’s still enough for Motorola to see possible salvation after years of decline and for Google to feel self-congratulatory about its venture into mobile.
Some of the success of the Droid, and the increasing number of Android-based phones available, can be ascribed to its clean and versatile operating system. Reviewers and users agree that Android still lags the iPhone, but the gap is closing. In contrast, Microsoft’s Windows Mobile has stumbled through numerous iterations — it’s now on version 6.5 — and endless renamings. No one has ever liked it.
Nokia once ruled the roost with its Symbian-based smartphones, but its market share has been declining steadily. Nokia still sells more mobile phones than anyone else in the world, but Apple — which sold 7 million phones versus 113 million for Nokia in Q3 — astoundingly makes more profit, $1.6 billion on handsets in Q3 this year against $1.1 billion for Nokia.
The operating system alone, however, doesn’t explain the Droid’s initial success, or even the iPhone’s ascendancy. What Apple has done so successfully is build a thriving ecosystem around its product. The various Android-based phones are following the same path. There are now more than 100,000 applications (dubbed apps) for the iPhone, with hundred more appearing every week. As the advertisements tell consumers, there’s an app for that, whether it is timing your cooking for a complicated dinner party, using Facebook, tracking FedEx packages or getting snow reports from ski resorts.
As more apps are developed, there are more and more reasons to buy an iPhone rather than the competitor, the phenomenon economists call network effects. In contrast, there are about 10,000 apps available for Android-based phones. That probably covers the vast bulk of what most users want to do, but the perception is that the iPhone can do much more (hence the Droid’s advertising slogan: Droid Does).
Apps, overwhelmingly built by third-party developers, are nothing new. Apple’s innovative idea was to put an app store on its device, so users could browse, choose and buy apps casually and spontaneously. You didn’t need to search for different vendors, or download apps to your computer for future syncing with your phone. So the ecosystem becomes the phone itself, the app store and the thousands of developers.
Bracing for bar brawl in mobile phone emerging markets
The last thing that the complex negotiations between India’s Bharti and South Africa’s MTN Group to create the world’s third largest mobile phone company needed is more complexity. The existing deal involving an intricate mix of cash and stock is further complicated by currency fluctuations and diverging growth rates between the maturing Indian market and the wide-open African one.
But if a third company, Zain of Kuwait, succeeds in starting up a full-scale bidding war for itself, the Bharti-MTN deal could come off the rails and fall apart. Zain’s CEO told Kuwaiti daily Al-Rai on Monday that it is in talks with three major, but so-far unnamed telecom firms, including one from India. Last month, Zain said it was reviewing the possible sale of its far-flung African operations after French conglomerate Vivendi called off talks to buy a majority of Zain’s African business. A Vivendi spokesman says nothing has changed since then. There’s no word yet from other obvious suspects — France Telecom or Vodafone — on whether they are interested.
The most likely Indian bidder for Zain looks like Reliance Communications, India’s distant No. 2 mobile operator to Bharti. There’s history here, as Reliance tried to nab MTN a year ago. That move came after Bharti’s first try to strike a deal with MTN, South Africa’s second largest operator, fell apart over which company’s management would end up controlling the combined entity.
At least temporarily, the only two parties we can rule out as bidders for Zain are Bharti and MTN. The two would be entirely likely candidates, except that they remain locked in exclusive talks with one another until the end of August. Zain’s assets make it an obvious alternative should Bharti and MTN fail to make their belaboured third effort to strike a deal work after more than a year of trying.
There may be too much sheer complexity in merging India’s most successful company with the diverse strengths of MTN, a big player from South Africa to Nigeria to Iran and Afghanistan. Both companies have corporate egos to match their roughly US$30 billion market capitalizations.
The outright acquisition of Zain’s comparable assets looks a whole lot simpler. Clearly Zain, valued at around $20 billion on the Kuwaiti exchange, is trying to stoke a bidding war for itself by talking up mystery bidders. Coming just weeks ahead of the Bharti-MTN deadline, the Zain CEO’s comments suggest he is trying to entice either Bharti or MTN or both into bidding for it.
Until recently, the two merger speculations appeared to be two separate events that happened to be taking place over some of the same battleground — mobile phone markets across Africa and the Middle East. Maybe a good old fashioned frontier bar brawl is the easiest way of working this all out.
Humbled giants eye business phone market
LONDON, Aug 13 (Reuters) – Once they were warriors battling one another on the digital battlefield. Nowadays, Microsoft and Nokia are worriers, huddling together for comfort.
The world’s top phone and software companies need each other to compete with Apple, Google and Blackberry-maker Research in Motion (RIM), whose products increasingly define what users expect from phones and charge premium prices in consequence.
In the market for so-called “smartphones”, Deutsche Bank estimates Apple and RIM now take home more than half of all profits, despite producing less than a third of high-end mobile phones. Nokia held a 45 percent share of the smartphone market in June, according to Gartner Inc. (Table 2 in Gartner release)
The news this week that Nokia will feature Microsoft’s office software — features such as Word and Excel — on phones aimed at business users is symbolic of what is possible rather than significant in itself. It fell short of predictions in the gadget trade press that Nokia might introduce phones running on Microsoft’s own Windows Mobile software.
But that doesn’t mean their collaboration should be dismissed. There’s more to this budding relationship than meets the eye.
First and foremost, Microsoft and Nokia say they are taking on the Blackberry email-phone, a must have among corporate professionals. So far the they haven’t done very much, for all the big talk. But they have pledged to make Microsoft Outlook work smoothly on Nokia phones.
This is crucial in overcoming Blackberry’s key advantage — the underlying software that companies rely on to securely manage corporate e-mail.
Nice article, Eric. Also in terms of what it elegantly understates – that nobody in the lucrative U.S. phone market is remotely satisfied with their phones or the cost of ancillary services the subscriber has to come up with.
There’s a lot of room for growth, if somebody would just listen to what the customer wants and deliver something like that instead of slowly bleeding users to death with costly add-ons and phony rebates instead of decent service at a fair price on a not-too ugly handheld device series.
Apple’s iPhone is a promiscuous lifestyle product unhappily married to the ogres of AT&T while flirting with the enterprise user market. Microsoft has Windows and Outhouse to contend with, tripping over its own necrotic brand software in the process of whatever they might try to do next. The Windows decal on any phone is a deterrent to buying it, at this point. I mean, what size of chip would one really need to store all the viruses and spam you’d be getting if one went down the MS route? That one hasn’t been invented yet.
At times like these, one might expect your last sentence to ring true with the makers and sellers of such devices. Hopefully, they’ll get the message soon.
Apple-Google learn Corporate Governance 1.0
LONDON, Aug 3 (Reuters) – The resignation of Google CEO Eric Schmidt from Apple’s board should come as no surprise to anyone with an inkling of what corporate governance means.
But then Silicon Valley’s idea of corporate boards has long consisted of cozy, interlocking directorships which would be considered collusion in most other industries.
Google’s CEO is not leaving Apple’s board voluntarily. He is only stepping down in response to the increased government scrutiny of obvious potential conflicts of interest between the two companies.
Yet regulators shouldn’t be content with Schmidt’s departure. The truth is that Apple and Google have been heading into the same markets for years. A veritable chain of overlapping business ties remain in place even if the most obvious formal link is now broken.
The chairman of Apple’s board, former Genentech CEO Art Levinson, remains on Google’s board. Another Google board member, Ann Mather, is the former chief financial officer of Steve Jobs’ former animation company, Pixar Studios.
Paul Otellini, the CEO of Intel Corp, Apple’s main chip supplier, also sits on Google’s board. Al Gore remains on Apple’s board, but in his new turn as venture capitalist he has many business ties to Google and its founders. Gore is a partner of Google board member John Doerr at legendary Silicon Valley VC firm Kleiner Perkins.
For months, the U.S. Federal Trade Commission has been examining Schmidt’s participation on the boards of the tech world’s two most dynamic companies. Last week, the Federal Communications Commission said it was looking into Apple’s decision to reject a Google phone application to run on the iPhone.
This reader generally finds Eric Auchard easier to follow than in the present article, which ought to be interesting, but in my opinion leaves much room for confusion.
Is the point here that Apple and Google are not competing sufficiently against one another, or that they\’re competing too much and if so, how could this possibly be the case? Frankly, I\’d like to see them compete more rather than less, but it\’s really hard to tell from what has been written here whether they do and what makes them any worse than [insert long list of major U.S., corporations here].
In passing, would it not be appropriate also to actively question the debilitating role in post-IPO terms that VC can and too often does exert upon emerging industries, by dictating terms of policy and players involved? There\’s more than a smattering of governance ethics needing dealt out and enforced in the entire business sphere of so-called Venture Capital, and has been for over a decade. Which brings us to the present.
Corporate governance – or lack thereof – would be a fundamental topic of immense importance if properly argued across the board in American [for lack of a better word] industry.
I for one would like to see corporate cartel considerations scrutinized more closely in general, rendered transparent, (within reason) enforceable and, particularly in this case, put in better perspective before concluding the debate.
Tech Links: Phones, more phones and communion wafers
Better luck next year for Android Taiwanese smartphone maker HTC has warned of a revenue shortfall, saying it has too many new phone models chasing too little revenue. Revenue growth will turn negative in 2009, instead of growing 10 percent, as the company had previously forecast.
Chief Executive Peter Chou says: “Momentum on both the Windows Mobile and Android platforms are also turning out to be weaker than expected.”
HTC said it is boosting its marketing spending to more than 15 percent of revenue from 13.5 percent to fend off market leader Nokia and the Apple iPhone juggernaut.
My favorite line: ”Investors have been relatively bearish on the company this year, with HTC’s shares having risen about 36 percent so far, far lagging the 54 percent advance on the TAIEX share index.”
Bharti looks ready to raise price for MTN Bharti Airtel and MTN have agreed to a month-long extension to merger talks to seal a deal that would create the world’s third largest mobile phone company in subscriber terms.
This looks like the prelude to Bharti raising its bid for MTN, answering resistance to the deal by investors in the South African company. It all follows weeks of jockeying by Bharti to line up funding with banks and key shareholders.
The merger appears to be moving ahead despite signs of growing worker unrest in MTN’s homeland. Over the weekend, South Africa’s Communication Workers Union said workers at the fixed-line operations of Telkom SA will hold a two-day strike this week.
What I wish these phone maker companies would start working on is an Internet Cell Phone. One that uses the internet to communicate voice thru. They will compete against Cell Based Systems and this will force the Cell Companies to Lower their Prices to Decent Levels.. This current Contract/subscriber system is old and Monopolistic. If Google or Sony or or Somebody could develop this phone that worked as tranparently as the current cell system then the next wave of Telecommunications could begin and Give these Cell Companies LOTS of Competition. Thus Lower Prices to the end user. Right now My next phone will be an Internet Based Phone NOT a Cell Phone.
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The Wall
Is the smart, droid market actually worth all the hype?
I have a Straight Talk Phone With all you Need $30 monthly I get 30mb data on Verizons network and find it is enough for a email and a bit of searching. what is so much better with all the applications? a normal phone works just as well in my opinion and possibly easier.