Google’s penetration of Android is as important as Android’s penetration of the handset market

Continued from an earlier post on Android being Google’s best strategic move ever. This Post examines how and why Android undermines the strategic intent of Google in the mobile space.

The best anti-thesis to “Android is selling in huge numbers” is possibly “Android has huge problems in fragmentation” arguement. On a superfical level what this translates to is the consistently lower engagement and monetization of the platform – a far cry from the Apple iOS. Android is the quintessential open source which also means that the Android army stretches from the Samsungs to the Shenzhen sweat shops – the smallest white label OEMs who are fragmenting the low end markets all ends. Samsung’s dominance of Android platform is not the best solution for Google as it struggles with its own line of Motorola Android phones.

Android today is at the same place where Wintel was a decade or two back with an armmy of clones of cheap PC makers churning out tens of millions of cheap commodity PCs. What Android and its eco-system ( Qualcomm, EMP, Mediatek, Allwinner, Spreadtrum) have enabled is a flood of cheap commodity smartphones and tablets. A vast range of other devices ( netbooks, in-car PCs and DVD players, set-top-boxes and lots else besides) following on behind. Often the fragmentation of the Android means a $45 smartphone with no access to Android Play market – but only a way to latch on to the internet. Google thus starts missing out on mapping this strata of smartphone buyers. (Agreed the search would still come through Google).

Compare this with Apple, a $650+ device – bought by a completely different set of consumers to whole experience, exploration and ads make more sense.Thus,it is quite possible that iPhones generate more advertising revenue for Google than all Android phones combined. In that respect 20% iPhones sold globally are more valuable than 70% of the Androids sold.

Beyond the search and advertising revenues that Google makes from Android, there are those bits of signalling data- that the low cost Androids miss out – those valuable bits of information that map the user holistically. A data mine that can be leveraged for data with relevance to the user. The real structural benefit to Google from Android comes from the understanding it gives of actual users, and the threat comes from devices that do not provide this data – even though theoretically, it can still leverage Google search. A significant portion of the $45 handsets skimp on Google apps just as they skimp on IMEI numbers. These devices are like dark matter: a lot of it around – but nothing really adding up to the worth.

Benedict Evans does a very accurate description of the Android platform- Very powerful but spiralling semi-randomly with no clarity on where it would land. Even when there is the threat of Amazon or Samsung forking the platform, there is also the threat that an increasing number of Android devices might have no more connection to Google than does an iPhone.

To put that another way, Google’s penetration of Android is as important as Android’s penetration of the handset market.

Modern day Dell? Or Sony? Or is there something more to Samsung?

Q4, 2012 revenues- $52.7 bn, profits- $8.8 bn.CY 2012 revenues – $188bn, profits- $27bn.

Samsung is on a roll and having thumped Nokia four quarters back, Samsung is taking the fight to the mighty Apple. Samsung is already the no.1 Mobile phone maker and smart phone maker globally. Also, its foray into Smart Cameras and Refrigerators have altered Samsung’s position from a Fast Follower to a Technology Leader in the Industry! 2012 has been very productive for Samsung as it seems to have a transition from a moderately successful electronics Chaebol to the leading non-iOS device maker. Interestingly enough Samsung and Apple make 104% of the Mobile devices profits – leaving no headroom for any investments from any other Mobile device maker. Samsung’s relentless progress in the Mobile-tech sector over 2012 have christened it as the Fifth Horsemen – next to Google, Apple, Amazon and Facebook. (and I am shocked by the absence of Microsoft in that list by MG Siegler).

Even while Samsung has made its modest efforts to extend its run in smartphones to Smart TVs, Smart Cameras and Smart Refrigerators – the key to Samsung is and will remain to be smartphones. If smartphones as a device follow the PC/Laptop route – i.e only incremental changes and no quantum leaps- then Samsung will end up the HP, Compaq and Dell route – where these players kept producing laptops until laptops became redundant – due to the advent of Smartphones and tablets (Handhelds is the industry terminology). Those profit figures will be difficult to emulate year on year in horizontal device domain.

Currently, at this point of time, Samsung seems to be going the Sony Way – Like Sony had the Walkman, the Bravia TV, Sony Music system, Vaio laptops, Mobiles & Smartphones, Cameras and other very strong sub brands in the consumer segment and has been largely unable to piece it together in a coherent strategy. The lack of this coherence was what has led to the slow skid at Sony. Samsung similarly is invested in a dozen and more device categories – TVs, Mobiles, Tablets & Smartphones, Laptops, Cameras, Refridgerators, ACs and Washing systems and in the current context is seemingly trying to put all these devices in the connectivity era. However, that is nothing more than just a smart tactical move – and Samsung knows this. Samsung’s dilemma is about not being able to marry these disparate components into one converged strategy.

(to be continued)

Connected Camera Begins!

The headline reminds me of “Batman Begins!” – 1st part of Christopher Nolan’s Batman trilogy.

However, unlike the Batman series which made some epochal contributions to the world of movies – the Samsung Galaxy Connected Camera (Even while it breaks new ground in Camera connectivity to the Internet), isn’t essentially a breakthrough device in terms of the value that it brings to the customer. It does bring a novelty and innovation tag to Samsung – which is now exceeding itself and transforming itself from a Fast Follower (Read Apple) to a Innovator.

Firstly the specs and features and there isn’t much reading here- Clearly Samsung has extrapolated its competency in the Galaxy smart-phone and leveraged it to bring forth a device that centers on the Camera and the Networked. The device by itself is a smart looking thingie and from what the initial reviews say – it is dimensionally/ergonomically easy to carry around in the pocket.

Now then comes the all important question of how this device is positioned and will it be able to cut ice in a melee of converged devices. The key is convergence – and if the trend from EBook readers and MP3 players is read through – both these stand alone (single/dual function boxes) do not quite run the favor of customers. Both EBook readers and MP3 devices are onwards a gentle decline which in product marketing terminology would be branded as End of Life. The vote goes to the converged set of devices – which is this case is the smart-phone. The new converged devices pretty much does the same as compared to the connected Camera along with other moves such a music, gaming, browsing, calling, texting and more.

A critical component of the Productization and Penetration process is the Price. Priced at Rs.29999 (Rs.29850 on deals), the Connected Camera is dearer than the entry level DSLRs. A DSLR is a semi professional device that the connected Camera intends to substitute. However, DSLRs are much more versatile in terms of the Imaging technology – a touch screen camera with Applications is an interesting substitute- but there is nothing that can beat the concept of changeable lenses that the DSLRs provide. Thus the Connected Camera will not be a semi-professional/professional’s device of choice.

In effect, Smartphones will continue to rule Casual Imaging and DSLRs will rule the professional imaging – Thus leaving the Connected Camera with fewer options exceot perhaps a geek (with money) who just wants the device for the sake of having it.Bottomline – I dont see the Connected Camera carving out a niche for itself.

Thus the Connected camera to me is about Samsung’s coming of age on devices- the benefits in terms of capability and competency enhancement will accrue to the Galaxy Smartphone in its imaging division – a great way to take the challenge to Nokia Pureview.

The Apple- Samsung duopoly in Mobile Phones/ Smartphones space

Most of 2012 is behind us and it is still an Android – Apple duopoly on Smartphones and tablets. While Android devices and the iPhone make up an overwhelming majority of all smartphones being sold (85% as Gartner Q3, 2012), Windows Phone is still to get the traction it hoped for (although it registered a 1.5X growth over Q2, 2012).

In the mean time, Samsung and Apple dominate the smartphone landscape sharing between themselves 104% of the total mobile phone industry profits generated. iPhone cornered 63% of Mobile phone profits, Samsung made away with 40%. The only other OEM who has been in the black is HTC @ 1% of the mobile phone profits. Phone brands other than Samsung and iPhone have seen a reduction in market value of a combined 64 per cent (Q3, 2012 versus Q3, 2011).Over the last year (YoY Q3,2012 versus Q3, 2011), Samsung profits from Mobile operations jumped 231% while Apple increased 163%.

 

Mobile Phone Profits – Asymco- The Samsung/ Apple duopoly

The good news is that the industry has had net value creation–always a healthy sign that innovation is being valued and absorbed and there could be an outside chance for a third payer (possibly Microsoft) some chance at gate crashing into the industry profits. However, with most of the profits getting banked only at Samsung or Apple, there is very little room for other OEMs (i.e Nokia & RIM) to spend lavishly on devices and services.

 

The Samsung and Apple duopoly has played up in Smartphone segment volumes

On the good many others who are completely sidelines (the list includes Motorola, Nokia, Sony (Ericssson), LG, Blackberry) – the decline is monumental. They all saw Apple coming a mile off. The media had been speculating for several years on when iPod would become iPhone. Yet they sat on their hands, too busy creating monopolies of their own to see where the world was headed. And in doing too many things for too many segments across too many geographies on a varied range of price points – they never built a roadmap to what could be the future of mobile computing.

Interestingly enough, almost all the value from the Android ecosystem is concentrated in Samsung. From the mobile operators’ point of view this emerging duopoly must be deeply worrying. Having been forced to bend to Apple’s will, they were very happy to see the emergence of Android, with its promise of a multitude of manufacturers competing for their attention. Now it looks as though Samsung is in position to
call all the shots in the Android market

Going forward in Q4, 2012, the only thing that can be expected in this equation is Apple regaining ground basis the holiday season bookings of iPhone5 which has generated much of a hysteria around the world

The flight of Tablets in India

Fall in Entry level pricing has been instrumental in driving tablet sales in India which peaked at 5.5 lakh units in the second quarter of 2012, growing 59% over Q1, 2012 as per CMR report. This is a 6 fold increase against the Q2, 2012 numbers and it is in line with my expectations of 2.5 million tablet units to be sold in india in CY 2012.

Micromax emerges as the surprise number.1 beating the fancied Samsung and Apple – Micromax cornered 18.4% of the market compared to Samsung’s 13.3% and Apple 12.3%. During 2Q 2012, 47.4 per cent of tablet sales were from new entrants in the market with a strong focus on addressing application areas in the Education and Entertainment segments. This trend demonstrates clearly that vendors are positioning their devices at India’s youth. Close to 90 vendors launched their tablets till 2Q 2012.The average selling value (ASV) of the tablets in 2Q 2012 has dropped to little above Rs 13,000 from Rs 26,000 in 1Q 2012, as a majority of vendors in early 2012 launched their products in the Rs 5,000-10,000 price range.

The major feature ternds include WiFi connectivity, 7″ form factor, Android OS as the de-fault, 1GHz processor speeds and 512MB RAM.

Indian tablet personal computer (PC) market will touch 7.3 million units by 2015-16 from around 1.7 million units in the current year (CMR Data). My estimates put tablet numbers in India to touch upwards of 2 million units in CY2012. The developing ecosystem of this device will also ensure adoption by many users.

In contrast to tablets, desktop sales grew only 11% and notebook sales grew 26% in last 12 months and will slow down given the cannibalization by tablets category. Also a lot of government effort is twards driving Tablet adoption based on use-case specific internet applications.

Nokia-Microsoft – The real winner of the Apple-Samsung patent feud.

If the IBM PC was created in this patent environment there would be no Apple. They would have sued them out of existence.
If cars were invented today, one manufacturer would have a patent on using 4 wheels and all others had to pay a license fee for it.

While many have condemned the patent laws to be anti-thessis of innovation, the fact as of yesterday, the 25th of August 2012 remains that Apple has dealt a know-out blow on Samsung in the ongoing patent infringement case. Apple was awarded $1.05 billion for patent infringements by Samsung. Apple’s $1bln patent victory against Samsung is the third biggest patent victory. Centocor Ortho $1.67bln vs. Abbott Labs & Lucent $1.52bln vs Microsoft are higher. The current jury award of more than $1 billion isn’t going to kill Samsung, but the forthcoming possible injunctions against selling current devices is going to hurt Android more than anything. There are “others” who will re-evaluate the cost of licensing the patents on the ‘free’ Android OS.Expect Apple to be drafting invoices in the very near future.Most of these manufacturers will now want a fully licensed, covers all the patents and a user-accepted OS. The answer is obvious – the only alternative to Android is Microsoft. The timing is actually great for Microsoft too with Windows Phone 8 announcements coming in just a week and a half in New York.

As far as Samsung is concerned, the last thing Samsung will want to do is be left stranded in the courts holding their Android football while everyone else runs ahead to score with Windows Phone handsets. Nokia are all-in on the new platform, HTC could see it as a way to bypass Samsung’s dominance in Android, and both Huawei and ZTE are ready to leverage Microsoft’s OS. Samsung’s risk mitigation strategy of investing in multiple OSs and even in Windows will be very handy for them. Imagine where such a thing would leave Nokia, who are averse to distribute risks over multiple OSs.

Speaking of Nokia and Microsoft then – God could not have been kinder. 2 years into the Smartphone act, Microsoft was no-where with Windows and an year with Lumia, Nokia has barely cut through. Now Microsoft gets a few serious partners and Nokia benefits from an enhanced interest in the Windows phone. While there are many other factors that have benefitted Nokia’s share proce which has increased by 78% in the last month, the patent battle would be one of the underlying factors for the spike at Nokia.

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Overall, Apple took the victory, Samsung lost in court, but the true winner looks to be Microsoft.

Apple & Samsung monopolize smartphone profits (Even as Apple pulverizes Samsung)

Samsung shipped about 50 million smartphones last quarter — about double the number Apple sold and, according to IDC, the largest number of units ever shipped by a handset vendor in a single quarter. However, if Raymond James data is any indicator, Samsung’s 2:1 lead over Apple is a statistic in vain. Apple — thanks to the higher gross margins of the iPhone and iPad — far outshines its rivals in both revenue and operating profits.

Having generated only about 6 percent of the industry’s smartphones and tablets in the second quarter, Apple captured about 43 percent of the industry’s revenue and an astonishing 77 percent of the industry’s operating profits. Thats about 2.65 times that of Samsung’s. Interestingly enough, Apple and Samsung account for 96% of the global Mobile computings EBITs. Now you know why the rest of them are such a deep shade of Red! Apple’s statistic is of note especially in the light of the fact that Q2 in generally Apple’s weakest quarter and Samsung had the Galaxy SIII launch in Q2.

Ultimately, profits are the feedstock of innovation; and, innovation drives profit. Until Samsung starts generating more profits than Apple, we would not be overly concerned with who has the unit share lead. Remember, HP and Dell still sell a lot more PCs than Apple sells Macs, but does it matter. Probably not to Apple.

How the iPhone5 measures up?

At launch, iPhone was christened Jesus Phone and over the last 5 years, while there have been challengers to crown of the “World’s best smartphone”, iPhone has seen most of the challengers and challenges off. The list of iPhone contemporaries includes Moto Droid, HTC Evo 4G and Samsung Galaxy SII prominently.

However with every iteration, the Android army has gotten nearer to the iPhone so much so that Samsung Galaxy SIII is arguably a better device than iPhone4S. With a 4.1 upgrade, the Siri factor should also take care of itself (Google Now).

However, if rumours are to be believed the iPhone5 will do what it is expected to do. Raise the bar a notch higher for the Samsungs, Motos and HTCs to aspire for. Here’s how the iPhone5 scores over the Samsung SIII

1. Samsung will retain the screen edge with the massive 4.8″ screen. However to iPhone5′s credit, this is the first screen size upgrade to iPhone in 5 iterations in 5 years. Apple will thus graduate to 16:9 resolution, rather than the 3:2 currently.

2. It is rumoured that the Exynos processor, which powers the SIII will be the one that will power iPhone5 with a quad core.

3. In terms of design, Apple will hold the aces with a supposed Liquid metal which is quasi glass feel which in terms of touch and feel will be heads and shoulders above the Plasticy Samsung SIII

4. Perhaps the most earth-shattering change in the iPhone 5 is that it’ll reject the 30-pin connector used across iPods, iPads and iPhones in favour of a much-smaller (reportedly) 19-pin model. While a converter would be in scheme of things, this could momentarily create inconveniences for hardware/accessory makers in Apple stable.

5. Apple has sacrificed an increase in battery power to maintain the slimness of the machine. However one expects that it would still be higher than the 1430 mAh in iPhone4S

6. iPhone5 slimness quotient is worth raving. iPhone5 would cut the slimness quotient by a factor of 19% for iPhone 4S and 11% against the Samsung Galaxy SIII

7. In terms of pixel density, iPhone5(325PPI) would be 6% more richer than Samsung Galaxy SIII (305PPI)  and 13% richer than iPhone4S(305PPI).

8. Last and final, rumours abound about 3D camera given the Apple patents around the same. While its a long shot, it is a dream shot. Hope Apple gets this through because the camera story needs to more than a linear progression into something more meaningful

Any bets on the Apple share price at iPhone5 launch? I would bet $700

Why Samsung’s Device strategy will not be a sustainable one in the long hop?

Samsung has been on the ball with the rise of Smartphones globally. The SIII  pre-ordered 9 million units and Samsung stands pretty much ahead of the competition with Apple some space behind it. However does Samsung have firm ground under its feet as far as Smartphones is concerned? In my view the Smartphone success story for Samsung is very device led and is not very sustainable in the long run. The following are the reasons of my belief

1.  In fact, Samsung’s superiority in this space stems from its competency across screens – LCD, LED,OLED, AMOLED, Flexible OLED, Super AMOLED.  It essentially leverages its strength in TVs to the mobile screen. True the Galaxy S series phones are possibly the first super phones, but is Samsung missing the consumer and the usage bit? Sample this – Samsung has an astonishing range of devices from 1.4” screens to 11” screens. In Tablets, Samsung has 7”, 7.7”, 8.9” and 10.1” screens for Android and will soon come out with a 11” screen for Windows8. The many screen tablet strategy serves to only confuse the consumer in lieu of greater choice. Most importantly, there is no underlying proposition that  Samsung over-archingly provides across its high end devices except perhaps a large screen migration from one device to other. 
2. Apple on the other hand has 2 devices each in smartphones and tablets and while it competes on the hardware, it also leverages the app eco-system, the voice recognition technology, the iCloud, iTunes store and a seamless transition (between iPad, iPhone, iTV, iTunes) to build the customer story. That to me is a base which can be used to Apple’s advantage in providing a consistently great experience across all screens and keep building on it. Samsung’s range is made of individually great devices, but no commonality underneath the surface.
3. Samsung is also on divided stakes on Android, Windows8, Bada OS and Intel powered Tizen. That is good in as far as de-risking perspective. However, Samsung is being dependent on atleast 3 app eco-systems which is a challenge as far as a consistent consumer experience is concerned on Samsung per se.
4. Samsung would obviously ride on the Android/Windows cloud and the other properties of diverse platforms but there is no singular property which would provide the consistent Samsung experience across the range of devices (Smartphones, Tablets, Laptops, TVs). Compare this with Apple where the iCloud and the iOS form the bedrock of a great consumer experience.
5. While I personally fancy the 5 inch Galaxy Note for the handwriting feature, what amuses me is that Samsung has not really taken this feature across its other smartphones and tablets.
6. As the device space becomes increasingly competitive – (remember how HTC One is snapping at Samsung’s edge), the above mentioned factors provide donot quite provide a platform for Samsung for an all encompassing media and mobility experience.
7. Stickiness and great experience are key to building profitability and that is one area where Samsung shall always lag Apple – in terms of generating profits inspite of a great portfolio of devices.
8. Even while Sony is itself bleeding from a thousand cuts, it has a few interesting properties around media and entertainment (Sony Entertainment, Sony BMG, Playstation).  Amazon has a firm media selling competency in terms of books, videos, music. Apple is the best itegrator of online and mobility experiences. These are larger customer propositions than just the device. Samsung rides on the device strengths which are at best competitive but not compelling.

Love to hear your views about my belief – that Samsung will never really open up a large lead (assuming it is able to maintain a lead over Apple)

Global Smartphone marketshares: IHS and Strategy Analytics

The battle for smartphone device supremacy is all the way headed in 2012 with Apple and Samsung slogging it out. Nokia which was the market leader till 3 quarters back has now been pushed back to 3rd spot on the market shares. While Apple managed to sell 37 million iPhones in Q4, 2011, Samsung managed to edge out Apple as the year’s top smartphone manufacturer. Samsung played to a portfolio strategy and advanced in 2011 because of its strategy of offering a complete line of smartphone products, spanning a variety of price points, features and operating systems.

The relatively small growth of Sony Ericsson and Motorola may indicate that the Android smartphone market is becoming too crowded as the various licensees compete for limited consumer mindshare and shelf space.

With global smartphone shipments nearing half a billion units in 2011, Samsung is now well positioned alongside Apple in a two-horse race at the forefront of one of the world’s largest and most valuable consumer electronics markets. Nokia’s global smartphone market share halved from 33 percent in 2010 to 16 percent in 2011. A lackluster touch-screen smartphone portfolio and a limited presence in the huge United States market caused Nokia’s shrinkage last year. Nokia’s partnership with Microsoft will be very much in focus during 2012, and the industry will be watching closely to see how swiftly the two companies can expand in the high-value 4G LTE market that is rapidly emerging across the United States, Japan and elsewhere. The silver lining for Nokia was that a million Lumia’s have been shipped in 2 months since launch and Nokia has in over a decade has found some traction with US Operators with the Lumia.