Tuesday, November 15, 2011

Mobile Platform Wars

According to Electronista, Gartner (whose direct link I didn't find; help welcome on this) reports that the 3Q2011 unit sales in worldwide mobile devices totaled some 440.5M units, of which 115M were smartphones.

Mobile device sales share by vendor looked like this:
23.9% Nokia
17.8% Samsung
4.8% LG Electronics
3.9% Apple
3.2% ZTE
2.9% RIMM
2.7% HTC
2.5% Motorola
2.4% Huawei Device
1.9% Sony Ericsson
33.8% Others

Considering that Apple's stated objective at iPhone's launch was 1% of the global share, this is quite a result. (Apple's 17m unit volume result was down sequentially from the prior quarter, presumably in anticipation of the imminent release of its new iPhone model, which at launch sold 4m units in three days before the rationing started.) Apple has increased its reach into numerous countries and has made a recent effort to focus on China, where the 300m+ middle class is a growing population. The whole list is included so that the just-over-a-third-of-the-market chunk that represents other smaller manufacturers is put into proper perspective. There are lots of handset vendors, and a big chunk of the phone space appears open to competition by small vendors with no particular advantage in scale or platform advantage.

Gartner reputedly reported that smartphone unit share, broken down by operating system, stood as follows:
52.5% Android (Google)
16.9% Symbian (maintained by Accenture, but appearing largely in Nokia devices)
15.0% iOS (Apple)
11.0% Blackberry (RIMM)
2.2% Bada (Samsung)
1.5% Windows Phone (Microsoft)
0.9% All Others

The story in platform is very different than in handset hardware. Only four vendors have double-digit share, and one of them appears on only one line of phones. Nearly the entire rest of the non-Apple segment of the market – 85% of smartphones – appears to use one of a few large-volume multi-phone operating systems. Leading among them is Android, which is a free Linux-derived operating system running WebKit and V8 and other no-charge open-source software. That it is free is certainly a reason OEMs would prefer it to a per-unit licensing fee as required to join Microsoft's tiny (by unit volume; I'm sure its enormous by code size) mobile ecosystem. Microsoft's 1.5% result was a drop from the 2.7% it had held of the phone platform share in the
year-ago quarter. The Nokia deal has apparently not yet paid off with a large volume of unit sales. Unless Nokia's fortunes reverse it will have little power to lift Microsoft's mobile share over the long run; if Nokia thought it was winning, it wouldn't have needed to abandon its own OS to partner with Microsoft, no? Since Nokia's >16% share of the smartphone platform sales gleans it just 4% of the operating profit in the mobile space, it's clear Nokia hasn't isn't sharing with Microsoft a yummy peach of a market segment; it's sharing a hatful of picked-over apple cores.

Research in Motion also suffered a nasty drop from the year ago quarter – from 15.4% of the market to 11% – and its effort to maintain relevance will be aided by enterprise relationships, which will buoy it somewhat as it heads past your window toward the parking lot below. Whether it will survive the fall is for another post.

On the other hand, the biggest share-loser over the year has been the Symbian platform, which plummeted from over a third of the smartphone market (36.3%) to 16.9%. Although 16.9% is still good enough to turn in a second-place finish, the trajectories of the share of Symbian and Blackberry don't suggest good things against Android and iOS, whose trajectories are plainly skyward. Symbian appears to be running out of momentum as a platform, especially since Nokia has announced a deal with Microsoft that seemingly spells the end of Symbian as a Nokia platform.

Smartphone unit sales are increasingly concentrating in a small number of OSses. Budget vendors operating in the commodity space have a strong incentive to choose the only available free contender, which is Android. Android should, over time, accumulate most of the OEM business available from smaller commodity vendors, and there is little reason for larger competitors not to use it as well. Microsoft, which hasn't had success selling phone handsets, should have trouble unless through strategic partnership with larger vendors – but how many larger vendors will be willing to do business with Microsoft while its business model remains per-unit licensing fees?

Microsoft's mobile flop won't likely cost it anything noticeable on the bottom line – the billions it gleans from its cash-cow legacy businesses in operating systems and office software utterly swamp anything it could be spending on its mobile team – but things look grim in the mobile space for the company in light of its current strategies. Sure, some radical new idea could take hold – but radical new ideas haven't exactly had a track record of survival in Redmond, so I'll venture to say that until Microsoft's culture changes, the window-dressing won't have long-term impact on its mobile performance.

This seems to leave iOS and Android. Google's software-only contribution to most Android devices means that, like Microsoft, it need not profit on hardware. Being the magnet for vendors fighting over the sea of Android users – and all OEMs seeking to avoid per-unit licensing fees – will cause the Android segment to draw a significant fraction of the commodity hardware competing with similar technology on the basis of price (for which discussion, see here). Android will represent the larger mobile device share by unit volume, while – at least for the next several years – Apple will remain the vendor with the largest share of the mobile device profit (as it is in PC profit). (UPDATE: Apple's phone handset profit now exceeds that of all other handset manufacturers combined.)

In this view, Google will succeed in chasing the revenue it expects users to generate using Google's services on a growing population of devices capable of accessing them, and Apple will succeed in earning the profit to be had on handsets, and enjoying the post-sale revenues deriving from use of its App Store, Music Store, and so on. Neither must currently destroy the other to achieve their objectives, because their objectives are currently orthogonal.

This leaves the question whether Apple will succeed in developing a post-sale profit that derives from non-purchase transactions, as Google does. For example, via Siri-accessible services. Anyone care to venture a guess whether Apple reaches a point at which handset profits are dwarfed by post-sale revenue and Apple directs its economies of scale to making low-cost devices to grow user base? Is that where older devices such as iPhone 3GS are headed over time? Any thoughts?

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