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Why Talent is Limiting Supply in the Smartphone OS Market

Tuesday, August 17th, 2010

How many smartphone mobile operating systems can the market support? Wrong question. In a market of billions of potential devices with limited network effects [1] and hyper-growth demand the market could support lots of smartphone mobile operating systems – where lots is defined as greater than six and less than twenty. The limiting factor is not demand but rather supply. How many companies can build a competitive mobile OS? The fire sale of Palm and the launch of Blackberry Torch makes it clear that the list of companies that have the skills and resources to build, launch, and sustain a competitive mobile OS is getting smaller each month. Watching this playout feels like watching the top riders in the Tour de France fight their way to the top of Col du Tourmalet — each and every year only the most talented riders keep pace as the ride becomes absolutely grueling.

Companies are starting to fall by the wayside as the stacked teams of Apple, Google, and soon Microsoft take firm control of the race.
Lets look at a checklist of capabilities one needs to launch a competitive mobile OS. Half way down this list you will realize that very few companies have assembled a deep and wide enough talent pool to execute a smartphone mobile os on a global scale.

What you need What it gets you
User Experience
Multi-touch interface Parity
Visual appeal Potential differentiation
Multi-tasking Parity
Apps
Games, Games, and Games (1) Acquisition (great games sell devices)
(2) Lock-In (spend creates switching costs)
20,000 Quality Apps Parity
Discovery & Merchandising Easy & trust worthy
Media
Music Lock-In (spend creates switching costs)
Movie rentals Engagement
TV show rentals Engagement
Browser
HTML5 + CSS3 Compliant Browser Parity
Information Finding
Search Utility
Carrier financial incentive via revenue share
Voice Search Cool demo
Maps (limited number of suppliers) Utility + parity
Navigation (limited number of suppliers) Utility + parity
Communication Cloud
Mail Utility + parity
Voice Transcription Diffentriated
PIM Services Utility + parity
Payments
One Click Buy (micro transactions) Parity + Frictionless commerce
Global (90+ markets) Utility + parity
Fraud Mgmt Utility + parity
Launch Marketing
$250M consumer marketing Consumer awareness.
Percieved momentum for developers
$50M App developer launch Studio compensation to seed app library and app competitions
Devices & Distribution
#1 and/or #2 Carrier in top 20 markets (first yr) Market coverage
3 to 4 OEM’s building 8 million devices (first yr) Consumer choice of mid to high-end devices
Developers, Developers, Developers!
Popular IDE App quality
Time to market
Developer happiness
Deep SDK Device access (e.g. camera, acceleramator)
UI (e.g. animation, controls)
Service access (e.g. maps, contacts, mails)
Enterprise
Security Parity
Employee device & app provisioning Parity

[1] Limited Network Effects: During the PC war application developers propelled Windows PC to its monopoly position – users adopted the OS with the widest range of applications and developers adopted the platform with the most users. In the mobile smartphone OS war the top 20,000 apps that matter will be replicated to the top five mobile os platforms in each market or region muting the possible network effects because the development costs are relatively low.

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Myth of the Month: Microsoft Windows Phone 7 is Too Late.

Sunday, August 8th, 2010

Only two short years ago many thought Apple had built an insurmountable lead.  Android’s recent surge is proving that entirely wrong. Today, many believe that Microsoft is too late to the game.   This too is entirely wrong.  A lead of sixty million devices is not much of a lead in the mobile phone market.  To put this in perspective:

  • 140 million DVD units per year [source]
  • 360 million PCs (laptops, netbooks, tablets) units per year [source]
  • 100 million videogame consoles units per year [source]
  • 1.3 billion mobile phone units per year [source]

Mobile phones sell more than all of those – combined.  The two largest handset manufacturers Nokia and Samsung shipped 175M mobile phones (mostly feature phones) in Q1 of 2010.  That is more than 3x the total global PC shipments for Q1 2010.

The smartphone market of today is not what Google, Apple, Microsoft, HP, and Nokia are fighting for.   Today’s smartphone market is measured in tens of millions of devices per quarter across all the major players and by 2011 there will be 449M smartphone users (i.e. active subscribers).  The smartphone market of three to four years will be measured in hundreds of millions of smartphone devices per quarter.

Let’s be clear why Microsoft is not too late to this game:

  • Massive market.  An early lead of 60M devices in a 1.3B/yr shipped devices is not much a of a lead.
  • Device churn: People churn through phones rapidly (PC turnover is ~4 yrs and phones is ~18 months)
  • Weak lock-In:  Users are not spending hundreds or thousands of dollars on content (music, apps).
  • Weak network effects:  Given low cost of developing apps, the important ones are being replicated to the top tier platforms.
  • Carriers want Microsoft: They don’t want a Google and Android dominated market.  They want at least four major platforms each with 25% of the market, and believe Microsoft has the patience (i.e. warchest) and persistence to be one of them.

Full Disclosure:  I don’t work at Microsoft and I don’t own any Microsoft shares.  I simply believe the Android vs. iPhone conversation is myopic and ignores how insignificant of a lead both of them have established.

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Practicing Focus the Apple Way

Tuesday, July 27th, 2010

Today, Apple launched a whole slew of new and upgraded products today, here are the highlights:

  • New Magic trackpad  – this  is very cool as it brings full multi-touch to the desktop (review here)
  • 27 Inch LED Display (review here)
  • Upgrades to iMac line (review here)

A pretty significant product launch.  So, you would think with Apple passing on a big Steve Jobs press event at the very least they would swap the Apple.com homepage to promote the new products.  Not a chance.  They are laser focused on the iPhone.

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Android is Leaving the Door Open for Microsoft’s Windows Phone 7

Sunday, July 25th, 2010

When discussing the mobile landscape many people I talk with dismiss Microsoft’s upcoming Windows Phone 7 as too late.  They are definitely late, but not out.  Given a large enough market Microsoft knows how to execute (see gaming and enterprise software).  Additionally, the strong number two player in the market – Google –  is leaving the door open for them.

Fragmented User Experiences

Each Android device OEM (HTC, Motorala, Samsung, etc.) has created their own user experience layer on top of the out-of-the-box Android UI.  None of them have done a particularly good job.  Beyond the poor execution these fragmented user experiences create two problems for Android.  First, it creates a learning curve as user upgrade their devices. Users abhor relearning basic functions (ever wonder why Mapquest still has significant traffic in the face of far superior products).  If you are running the HTC Sense UI for Android and one day consider upgrading to a Motorola device running Motoblur these UI differences will appear daunting.  HTC is perfectly fine with this kind of reaction as they are trying to build lock-in to HTC devices.  But what happens when the user says to themselves well as long as I will need to relearn a user experience why don’t I try an iPhone or Windows Phone.  The second and perhaps more serious risk to Google from these fragmented user experience is the user never carves away a piece of their mind for Android.  To the consumer Android means ten different things based upon what kind of marketing the carrier did for the device, which UI layer you were running.  In fact many people have no idea that they are even running Android as there is nothing unique about the user experience that says I am running Android.

Google sees this as a serious liability and future versions of Android are focused almost exclusively on improving the out of the box user experience to avoid this experience fragmentation.

Bloatware

Yes, everybody pre-installs applications – even the iPhone.  While the iPhone does pre-install maps, weather, finance.  Carriers selling Android devices are going much further.  They are pre-installing niche products like the Nascar and Football apps – Wired provides the gory details here.  For example, my Droid Incredible from Verizon pre-installs City ID (a zip code lookup application), Footprint (local guides), Teeter (a game).  It is bad enough to pre-install niche apps, they prohibit you from removing these applications.  With that kind of experience it’s not surprising that 80% of Android owners will not buy another one.

Mess of a Marketplace

The Android Marketplace is a living example of a philosophy taken to its extreme with negative consequences. Android believes in a laissez-faire market.  Let all the apps in and allow the use to decide what is best.  The Android narrative goes something like this. Apple is the North Korea of the smartphone market and we (Android) are the open enlightened western country – where would you rather live?   This positioning may work for a small subset of developers but for users who actually simply want to find and install the latest app it is really not so simple.   Jon Lech Johansen’s recent blog post Google’s Mismanagement of the Android Market captures it well:

one should not need a PhD in Computer Science to use a smartphone. How is a consumer supposed to know exactly what the permission “act as an account authenticator” means?

Another example of this mismanagement, try searching for Yahoo in the Android Market. If you don’t have an Android I included a screenshot of what you see.  The first result (as of July 25, 2010) is an app made by a company called Lovemaq.  They stole the Yahoo logo, wrapped a few Yahoo.com web pages into an Android app, layered some ads around the app, and threw it into the Android Market.

Updated July 29, 2010:  Android app that steals your data was downloaded by millions.

The Case for Microsoft

After killing Windows Mobile 6 and the KIN Microsoft finally has their shit together. They are bringing a unique user experience (opens engadget’s recent review) in Windows Phone 7, a history of cultivating and supporting application developers, and strong relationships with both enterprise customer and OEM device manufacturers.  Combine this with a stomach for losing billions of dollars to build scale and the door Android is leaving open Windows Phone 7 will be a serious competitor far faster than most people realize.

Image courtesy of Flickr twenty_questions

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Why Barring AdMob (aka Google) from the iOS is a Smart Move

Thursday, June 10th, 2010

Two platforms are emerging the mobile operating system platform and nested within it is the mobile app and ad platform.  For over a decade Google played for keeps in its platform (search connects searchers and advertisers), so why shouldn’t Apple do the same? By barring AdMob from the iOS they:

  1. Limits Google’s Ability to Achieve Mobile Ad Dominance: The mobile ad business is a two-sided network. Apple is ripping away one side of that marketplace (or at least a very large chunk of it — 100M eyeballs).  This will limit AdMob’s (i.e. Google) ability to achieve critical mass in the mobile ad space during these formative growth years.
  2. iAd Accelerator: With AdMob out of the picture advertisers will move their mobile ad budgets to other ad networks and clearly  the iAd network will grab some of these dollars accelerating its growth as it attempts to reach critical mass.  Remember, in any market with strong network effects the strong get stronger and the weak get weaker.  Apple is positioning iAd to get stronger.
  3. Keeps Ad Innovation Alive (some): A key hallmark of an open system is the increased rate of innovation. By opening iPhone to select mobile ad networks the iOS platform will still benefit from the ad innovation these providers generate.
  4. Switching Costs for Developers are Still Low: In a mature market developers could incur significant switching costs i.e. if AdMob had 10x better ad relevancy algorithms combined with an advertiser base 20x the combined competition it would be challenging for the others players to match the revenues developers were generating.  But in such a nascent marketplace nobody has these kinds of advantages.
    • Other mobile ad networks (Apple iAd, Millennial, Greystripe, and Mojiva) will quickly pick up the slack and provide comparable monetization rates.
    • The cost of switching to another ad mobile provider is not significant – a new billing relationship, a couple of lines of code, and new analytic tools to monitor your performance.
    • The vast majority of mobile developers making real money (now) are not doing so with AdMob display ads — they are doing it with paid apps.

Finally, do you really believe that app developers would give up access to 100M mobile users who have a credit card on file.

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Mobile Design & Development Resources

Wednesday, May 26th, 2010

I have accumulated lots of links that serve as resources for understanding, building, and launching mobile apps and services.   Every so often I will share a data point or an insight I gleaned from these resources and somebody will ask me for the link – I then go digging.   To reduce the amount of digging I do and provide a better way to share these mobile resources I will start to organize them by topic here.  If you would like to add something to this small directory please add them in the comments.

Mobile Design

Mobile Development

Mobile Technologies

New Forms of Mobile Search & Discovery

App Store and App Marketing

Mobile Monetization

Web Businesses Adapting to the Mobile Era

Mobile Strategy

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