Friday, June 24, 2011

Smartphone vendors learn: commoditization is hell

As previously noted, the major goal of Android was to commoditize smartphones, to make them widely available from a wide range of sources. Consumers like open standards because they bring, entry, competition and lower prices — a point I made in a 2007 book chapter.

As any first year strategy student can tell you, low entry barriers that bring high rivalry and high buyer destroy industry profit margins. Assuming the major cellphone makers each employed one MBA graduate, this should have been utterly predictable.

But apparently this is news, at least according to a report by John Paczkowski in All Things D that quotes analyst Trip Chowdhry:

He says that Sony [i.e. Sony Ericsson], Motorola and Samsung are growing disillusioned with Google’s Android OS. They feel there’s too much fragmentation and too little differentiation among Android devices and that companies producing low-end handsets are collapsing the premium market they’d most like to play in.

“They’re starting to realize that their Android devices [are no different] in the eyes of the customer [than a] $20 Android Phone from Huawei,” Chowdhry says. “They’re worried that Android may dilute their global brand as customers put them in the same bucket with Acer, Asus, ZTE, Huawei, and MediaTek.”
Uh, yeah, we’ve seen this story before: it was called the Wintel PC (or for oldtimers, the IBM PC compatible.) Cellphones are worse, since the carriers control distribution and have an interest in selling the cheapest phone they can.

To prevent this lack of control and divergence of interests, these three branded vendors were co-founders and shareholders of Symbian. In the end, only Sony Ericsson took Symbian seriously.

Today, Chowdhry suggests that the big three should license webOS from HP. Two aspects of the report makes sense. One is that webOS is a modern, high quality smartphone OS. The other is that HP has negligible share and isn’t competing with them.

Still, the major handset makers are no more interested in sharing a standard with webOS than they were with Symbian. And the high royalties ($50-75/device) that Chowdhry proposes are not going to fly with companies that pride themselves on hardware designs.

WebOS and its (former) owner Palm are really a US brand. I think HP’s best shot would be to approach either Motorola (which is still US-centric) or Sony Ericsson (which is even more seriously in trouble) to see if they’re interested. HP could continue to use webOS for tablets and other devices.

Samsung is a lost cause. They put small bets on every open platform (Symbian, Windows Mobile, Android) while still hoping their proprietary bada platform will catch on outside Korea.

After two years of negligible sales, whatever window webOS has as a smartphone platform has just about closed. It takes more than a better mousetrap to get traction in a platform market: it also requires developers, hardware vendors, distribution and end users.

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