Smartphone Arena Sees War of the Giants

Now, this is turning out to be a real war. Google buys Motorola's device division, Motorola Mobility. Forget about the size of the deal and just visualize the future. Two big names in the software market have joined hands with 2 other biggies in the hardware industry-Google with Motorola and Microsoft with Nokia. The ecosystem has been changed now, rules of the war is being modified to make sure that the war is being fought between less number of parties but in a large battle field. This is the war of mobile device ecosystems. The world's biggest software companies do not want to be the sidekicks of the game and look at how the device manufactures are playing it; they now want to be actively involved in this, and rather want to control the game.

But who is at the back of their minds? Whom they want to fight against? Be it Google-Motorola or Microsoft-Nokia, they have most probably one single opponent to fight against-the iconic Apple Inc. The question is why do they want to fight against Apple? The answer is very simple-Apple's success. The Steve Jobs led company has so far been the most successful technology company in the world and just not in terms of revenue. The company has been successful in creating a brand that is the envy of all-arrogant yet most adorable-does not care for your budget, yet you buy its products. And no doubt all these are strong enough factors for other smartphone companies like RIM, Nokia or Google-Motorola to follow, but can they?

Aping the Apple.

Following Apple in whatever they do, be it the way they design their products, creating an application ecosystem or making the company an integrated communications player, has been the best game for other smartphone players for quite some time now. Though the game was started in the beginning of last year when HP acquired Palm for $1.2 bn, the industry noticed the trend only when Microsoft joined hands with Nokia to develop the next phase of operating system to be run on Nokia phones. The mobile phone industry no more remained the preserve of the device makers only, rather started to be controlled by the operating system developers like Microsoft or Google. Microsoft's move was fueled by the success of Android when the software giant noticed that 7 out of 10 handset makers running their phones on the Google developed operating system. Being an open platform OS, Android became successful in no time and other OS developers started feeling the heat. Some dropped their OS development plans completely and joined the Android bandwagon.

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A recent report by Strategy Analytics said Apple has become the world's largest smartphone vendor by volume with 18% market share. Apple's growth remained strong as it expanded distribution worldwide, particularly in China and Asia.

The recent acquisition of Motorola Mobility by Google to become an integrated player by having the entire ecosystem of device, OS and application in its control, just reaffirms the trend that one has to be an integrated player like Apple to become successful in the smartphone ecosystem.

“Obviously, after the Google Motorola deal, it became a different ball game,” says Abhishek Chauhan, senior consultant, ICT Practice, Frost & Sullivan, South Asia & Middle East. He is of the opinion that the next phase of this war is going to be controlled by the quality of the ammunition and not by the quality of weapons. He was certainly referring to the OS and application developers vis-a-vis device makers.

However, Apple was not so successful just because it's an integrated communications player. The Steve Jobs founded company has some other traits that are hard to emulate. One, Apple does not flood the market with multiple handset models, it brings out only 1 product and tries to make it the best. It helps the company in multiple ways. The entire R&D team focuses on one single product and managing the ecosystem and after sales service of the sole product becomes more easy for the company. Two, the company sticks to just 1 product and keeps it current for the entire year which helps Apple products maintain its freshness and brand image. Three, it launches a product, be it iPhone, iPad or iPod only after completely establishing its entire ecosystem. It helps the company in minimizing failure or risk of withdrawal from the market. In short, Apple makes sure a 'success' for its products before it launches them.

Emulating the business model of Apple could be easy but acquiring traits of Apple would be difficult for other smartphone makers, at least it does not look like a near reality.

What Does the Google-Moto Deal Mean?

Though the joint move by Microsoft and Nokia did not seem to threaten the existence of Android, it certainly created some big ripples with the Open Handset Alliance and mostly Google and the search engine giant had to come out with a fitting reply.

Nokia had done it earlier too when it had joined hands with Intel to develop MeeGo operating system that can be used for multiple devices like mobile handsets, tablets, PCs and STBs. But this did not create much stir in the industry due to the uncertainty surrounding Nokia's continued involvement in developing the OS.

Now, Google announced to acquire Motorola's device division, Motorola Mobility, for $12.5 bn, a move that reaffirms that the search engine giant means business in the mobile-computing market.

In an official Blog post, Google's CEO Larry Page said that the search engine giant wants to 'supercharge' the android ecosystem and the acquisition of Motorola Mobility is a strong step towards that direction.

“Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers everywhere,” posted Larry Page on his blog. The deal, which is expected to be completed by end of 2011 or early 2012, would give Google control of Motorola Mobility's patent portfolio. This would definitely give a strong boost to Google as the search engine company has a thin portfolio of wireless and telecommunications patents.

Justifying the takeover, CyberMedia Research's lead analyst Naveen Mishra says, “The approximately 17,000 patents that Motorola Mobility has in its kitty would help Google create and launch a very differentiated set of smartphone products.” Adding further he predicts, the deal would provide the required headstart to Google to effectively compete against rivals like Apple, Research in Motion, Microsoft-Nokia and Samsung by riding on the market knowledge, brand image and distribution reach of Motorola Mobility, without having to build a new business from base up.

Recently, Google had failed to acquire some technology patents of Nortel to multiple bidders like Microsoft, Apple, Oracle and others.

The Flip Side

However, there could be a flip side to this. The deal gives access to over 17,000 patents in Wi-Fi and mobility domain owned by Motorola. Irrespective of Android's features, ease of use and millions of apps, it can be argued that the backing of the bigger players with money muscle and sharper marketing minds such as Samsung, HTC, LG, and Motorola etc. did help Android a lot in gaining widespread acceptance as an alternative to Apple's much costlier iPhone devices. But by allying with Motorola, Google has also sort of ditched the open handset alliance that it helped establish in 2007.

Some experts in the industry anticipate the deal may go against Google and the open handset alliance as it creates certain kind of uncertainty for other device makers like HTC, Samsung and LG who also use Android platform. They argue that while Google has spent one-third of its cash pile on an acquisition, it would obviously be against its interests if Samsung, LGs and HTCs of the world continue to gain market share and Motorola Mobility remains a marginal player in the global handset market.

“If the Android ecosystem becomes even slightly unsettled in any way by the Motorola deal, then the uncertainty created may open opportunities for rival platforms like Windows Phone, Bada, MeeGo or webOS to step in and offer alternative solutions,” says Rahul Gupta, senior manager, emerging markets communication strategies, Strategy Analytics.

By this logic, all these other players should now logically start investing in alternate platforms such as Windows Phone 7, or start supporting an alternate OS in market. An acquisition of the increasingly beleaguered RIM and Nokia, who are finding it difficult to increase their handset market shares and revive their share stock prices, by these other handset makers can definitely be a possibility. The acquisition of Motorola by Google also started fueling the speculation in the industry that Microsoft eventually might end up acquiring Nokia for the same reason that the search engine giant acquired the Sanjay Jha led company.

Abhishek Chouhan of Frost & Sullivan also feels similarly. “It makes sense for Microsoft to acquire Nokia's handset division in the end.” Surprisingly and interestingly, the most successful player in the smart phone market-Apple-has kept a stern silence on the whole matter.

'Openness'-The Key for Google

Despite the stellar success of Android, Google's 'open' model is the polar opposite to Apple's 'closed' loop philosophy of owning as much of the ecosystem-from the OS to the hardware-as possible and both have been so far very successful. Apple does not seem to be perturbed by the recent deals, be it Microsoft-Nokia or Google-Motorola.

A key factor in the Google-Moto success will be how well Motorola Mobility fits into the newly created organization, though Google's CEO clarified that Motorola Mobility will be a separate business unit. The success of the integrated media players like Apple, Google or Microsoft will depend on to the extent to which its ecosystem is open or closed, and whether the underlying software is open source or proprietary.

Google has been characterized by its open source software, as well as its open ecosystem. The Android OS illustrates the benefits and challenges of this approach: Although Android offers consumers and developers a high degree of choice and freedom, its openness has also led to fragmentation of the OS itself as various handset manufacturers add their own customization, and, in some cases, sub-optimal user experiences.

Apple has taken a diametrically opposite approach to Google's. It is the only fully integrated player that combines hardware, software and content. As a result, it constitutes a closed, proprietary ecosystem across all 4 screens (PC, TV, mobile handset, and tablet PC). Apple's tight control over its ecosystem is its greatest strength and weakness. The symbiosis of the different constituent elements optimizes the user experience, but also limits consumer freedom and choice, as well as interoperability with other ecosystems.

The Microsoft/Nokia strategic partnership adopts an approach somewhere between those of Apple and Google. Nokia was the driving force behind the initially open source Symbian OS, but will abandon it in favor of Microsoft's proprietary Windows Phone 7 OS for most of its handsets. However, Windows Phone 7 will continue to be available to other handset manufacturers, in line with the open ecosystem strategy that led to its success in Microsoft's core business: PC software.

Gyana Ranjan Swain and Ritu Singh
gyanas@cybermedia.co.in
ritus@cybermedia.co.in