Dominant Design Evolution: Strategic Implications for Firms in the Smartphone Market PGSEM FINAL PROJECT REPORT Student [Roll No.]: Anuroop Gaonkar [2005011] Pankaj Kurse [2006039] Faculty Guide: Rishikesha T. Krishnan, Ph. D. Professor, IIM - Bangalore Indian Institute of Management Bangalore Towards partial fulfillment of the requirements for the Post Graduate Diploma in Software Enterprise Management of the Indian Institute of Management Bangalore
Transcript
Dominant Design Evolution: Strategic Implications for Firms in the Smartphone Market
PGSEM FINAL PROJECT REPORT
Student [Roll No.]:
Anuroop Gaonkar [2005011] Pankaj Kurse [2006039]
Faculty Guide: Rishikesha T. Krishnan, Ph. D. Professor, IIM - Bangalore
Indian Institute of Management Bangalore
Towards partial fulfillment of the requirements for the Post Graduate Diploma in Software Enterprise Management of the Indian Institute of Management Bangalore
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TABLE OF CONTENTS
1 PROJECT AIM, SCOPE AND METHODOLOGY ............................................................. 4
3.5 Factors influencing the emergence of a Dominant Design ..........................................10
3.6 Strategic implications for the firms competing to establish a Dominant Design ........12 3.6.1 Understanding the context ..............................................................................13 3.6.2 Strategic Plans and Actions ............................................................................14
3.7 Lessons from history for establishing dominant design ..............................................17 3.7.1 PC ...................................................................................................................17 3.7.2 BetaMax vs. VHS ...........................................................................................18
4 SMART PHONE INDUSTRY OVERVIEW ........................................................................21
4.1 Smartphone .................................................................................................................21 4.1.1 Features expected of a Smartphone ................................................................22
4.2 Smartphone Industry ...................................................................................................23 4.2.1 History ............................................................................................................23 4.2.2 Current state ...................................................................................................23 4.2.3 Qualitative Factors regarding the Various Smartphone Vendors ...................25 4.2.4 Projected growth in smartphone market .........................................................27 4.2.5 Traffic by Smartphone Vendor and OS ..........................................................29
5 ANALYSIS OF SMARTPHONE VENDORS FROM DOMINANT DESIGN PERSPECTIVE. .................................................................................................................................31
5.1 Smartphone eco system ...............................................................................................31 5.1.1 OEM/ODM .....................................................................................................33 5.1.2 Developers ......................................................................................................33 5.1.3 Mobile or wireless operator (MO) ..................................................................33
5.2 Nokia Symbian ............................................................................................................34 5.2.1 Strategy ...........................................................................................................34 5.2.2 Mobile Operators ............................................................................................35 5.2.3 OEM/ODM .....................................................................................................35 5.2.4 Developers ......................................................................................................36 5.2.5 Summary of Nokia’s Smartphone strategy .....................................................37
5.3 Microsoft Windows Mobile ........................................................................................38
5.4 Apple Mac OS X .........................................................................................................41 5.4.1 Strategy ...........................................................................................................41 5.4.2 Mobile Operators ............................................................................................41 5.4.3 OEM/ODM .....................................................................................................41 5.4.4 Developers ......................................................................................................42
5.6 Research in Motion (RIM / Blackberry) .....................................................................43 5.6.1 Strategy ...........................................................................................................43 5.6.2 Mobile Operators ............................................................................................45 5.6.3 Developers ......................................................................................................45
5.7 Google Android ...........................................................................................................46 5.7.1 Factors for Android ........................................................................................47 5.7.2 Factors against Android ..................................................................................47
6 FUTURE SMARTPHONE TRENDS AND POSSIBLE SCENARIOS ..............................49
6.1 Data oriented device becomes the norm ......................................................................49
6.2 Differentiation through feature / functionality addition ..............................................50
6.3 Internet based services become integral part of smartphone offering .........................51
6.4 Move towards Open Source OS from Proprietary OS ................................................52
6.5 User Interface evolution ..............................................................................................54
6.6 Rise of outsourced manufacturing, ODM and search for economies of scale .............55
6.7 Enterprise adoption of smartphones will increase .......................................................56
9.1 Books and Journals .....................................................................................................72
9.2 Web Site References ...................................................................................................73
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1 Project Aim, Scope and Methodology This project aims to track how dominant design patterns have evolved over the years,
understand the successful and not successful evolutionary patterns and then define what
could be the strategic implications of these patterns for the participants in the smartphone
market and products.
The study should help mobile application developers and enterprise CIOs besides all the
players in the smartphone eco-system to get a sense of the current state of affairs,
possible future trajectories for each of the products and factors and actions which would
make some of them more dominant than others.
The methodology that was followed was -
1. Understand from books, papers and case studies the way in which a dominant
design emerges and define the key factors that influence the eventual outcome.
This helped in defining the patterns commonly observed when a dominant design
emerges.
2. Collect data regarding the smartphone industry evolution as well as the
participants at this moment. This involved product features and product market
shares. This helped us determine the top players in the smartphone market.
3. Identify the key players in the smartphone eco-system along with their strategic
positioning.
4. Evaluate the major players on the parameters which usually determine dominant
design.
5. Identification of important future trends and its impact on the various players in
the smartphone eco-system using data regarding the industry and the key players.
These key trends also resulted in the possible future scenarios.
6. The analysis of the firms, the key trends and the scenarios helped to infer whether
there is some pattern in the evolution of smartphones as indicated by dominant
design evolution and what it would mean to the key participants in the
smartphone industry.
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2 Executive Summary This project aims to understand the common themes that drive the evolution of the
dominant design and then derive implications that affect the strategic actions the firms
must undertake to eventually succeed in an industry where a dominant design may
emerge.
The smartphone industry has been analyzed to check for the possibility of the emergence
of a dominant design. The analysis indicates that the smartphone industry is currently in
the fluid stage of evolution of a dominant design. Hence it is not possible to define the
eventual dominant design in case of the smartphone. But key trends that would influence
the plans and actions of the players have been discussed. This study has been able to
derive certain implications for strategic actions for the key segments of the market. The
possible evolutionary path of the smartphones could involve:
1. The themes of performance improvement, feature addition and consolidation at
the device chipset level as well as the operating system will progress in parallel.
Once the smartphone is able to provide basic document processing and web
browsing experience as compared with PC, the performance improvement or
device architectural changes would happen at lower rate and we will enter the
transitional phase. In this phase there would eventually be few operating systems
(either open source or proprietary) deployed on majority of the smartphones.
Thus there could be a dominant design in terms of the features and OS features as
in the case of the PC.
2. The few smartphone players who would work well with the operators and
provide users with applications and content they require will eventually stand to
gain due to access to complementary assets and network effects.
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3 Dominant Design
3.1 Concept of a Dominant Design Dominant Design is “the design (product architecture and feature set) preferred by the
majority of the users and adhered to by majority of the producers.” It can also be defined
as “the product and/or process architecture that becomes widely accepted as the industry
standard.”
A dominant design has a well defined internal structure and external interfaces. It also
provides a well defined function for a product based on the dominant design. The
dominant design makes many of the product related requirements implicit by
incorporating those in to the product architecture. The dominant design need not be the
design that is used in the product with the best performance, but it is the design of the
product that is used by majority of the producers and preferred by majority of the users of
the product as indicated in the definition.
3.2 Context for the evolution of a Dominant Design
The dominant designs emerge mostly in products that are produced in large numbers to
serve “a mass market and where the consumer tastes are relatively homogeneous” as
noted by Teece9 and agreed by Utterback2.
The subsequent sections will focus on determining the state of the smartphone market
and see if a mass market with homogenous functionality is emerging.
3.3 Paths to a Dominant Design
The dominant design emerges primarily in 2 ways.
1. Through an evolutionary process involving multiple competing entities where
some interfaces and features become well accepted and become the norm – De
facto way
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2. The participants co-operate to evolve a standard for a certain entity that most of
the participants adhere to – De Jure way
There are multiple views regarding how a dominant design evolves when many
competing entities are trying to establish their design as the dominant design. The process
through which a dominant design emerges in this case may be
a. Akin to the evolution process in which eventual outcome is influenced by the
probability with which each available alternative is chosen by various participants
other than the creator of the design5. - The evolution is dependent on the path
followed during evolution as each successive choice is dependent on the previous
choices and system as a whole moves towards reinforcing the choices made
previously.
b. Influenced by the strategic plan and action of the firm trying to establish the
dominant design6.
3.4 Dominant Design Lifecycle
Dominant design creation for a product and the associated production process follow the
pattern indicated below.
The lifecycle7 involves -
a. product innovation (Fluid Phase)
b. establishing a dominant design (Transitional Phase)
c. process innovation and leveraging on the scale based economies (Specific Phase)
This life cycle of a product where a dominant design may emerge along with the path
chosen for creating the dominant design has strategic implications for the firms
competing for dominant designs.
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Figure 1 - Product and Production Process Innovation Lifecycle involving dominant design. Fluid Phase
In the fluid phase, the industry participants realize the existence of the market and start
creating products to serve the market. The exact specifications of the product that would
satisfy any one segment of the customers in the market are not known. Hence this phase
is characterized by the entry of many firms and experimentation with addition of features
and performance improvements to the basic product. The experimentation happens with
the way components are organized and also at individual component level. The
performance frontier is redefined frequently. The production processes are not
streamlined. Premium is associated with a firm’s ability to bring products with newer
features to the market at a faster pace. The integration within the firm is high and internal
communication is high to create the required product. The firm is more integrated or
organic. The transaction costs are high. The competition among industry participants in
this phase is based on creation of entry barriers, acquisition of complementary assets,
creation of IP to gain competitive advantage, and attempts to create positive network
effect. The customers are choosing the product based on the features and performance
that they need. Near the end of this phase some of the firms clearly understand the
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customer’s needs and they start producing that “whole product”. Some of these firms
also understand what other complementary assets are required and gain access to these
assets through mechanisms of entering to alliances, building on their own, licensing etc.
This phase may see consolidation in the industry for acquiring the product feature
development related capabilities.
Transitional Phase
This phase begins only if the product has survived the infant mortality stage. The market
for the product starts taking off and demand grows. The feature based competition
reaches a peak. At sine time during this phase feature addition stops. Only improvements
in the existing features or performance keep happening by improving the components of
the product. The dominant design has been established. Products based on this dominant
design satisfy the needs of the majority of the customers. The firms start shifting focus to
streamlining the production processes in order to gain cost competitiveness. The process
innovation begins. The firms that have necessary complementary assets and innovate
quickly on the process side will usually succeed in gaining the advantage and widening
their lead over others. The industry as a whole will enter consolidation phase and some
firms are forced to exit due to non competitiveness arising out of irrelevant products or
costs. If products have performance that is better than the expected performance and if
the firms are able to extract premium for this performance, then the firms may remain as
niche players while the remaining market moves towards the products based on the
dominant design. In order to reduce costs firms try to gain economies of scale and also
reduce transaction costs. This leads to well defined interfaces for product components as
well as communication. These lead to disintegration of product value chain and the rise
of some specialized producers with scale.
Specific Phase
In this phase the product design is well known. The competition shifts completely to
costs. The process innovation peaks, and only few firms remain because these are the
firms that are the leading producers of the product at the lowest cost. At each stage in the
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value chain, there are very few producers and mostly the value chain is completely
disintegrated with specialized firms at each stage.
3.5 Factors influencing the emergence of a Dominant Design In this section, the various factors affecting dominant design as per existing literature
would be noted. These would then be considered in the subsequent sections when
analyzing the smartphone players. (Though not on a one-to-one basis)
As stated by Utterback the following factors play key role in the creation of a dominant
design.
1. Existence of complementary assets
2. The regulatory environment and government actions
3. Strategic actions by the firm
4. Through communication cycle between users and producers
Complementary assets: These are the resources other than the engineering know how and
the product creation capabilities, that
a. Enable the firm to provide the required product to the customer in
effective and efficient ways.
b. Influence the customer to choose the firm’s product.
There are different types of complementary assets such as general – that need no specific
customization for the product under consideration co-specialized – that need some degree
of customization, and specialized – that are acquired specifically for creating the product.
The details of these could be found in paper by Teece9.
The existence or non existence of the complementary assets influences the firm’s
capability to compete for the creation of the dominant design because these influence the
firm’s choices about
a. creating entry barriers
b. licensing the technology and design
c. timing of entry in to the market
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d. creating alliances
Regulatory environment and government actions: The two key factors here are -
a. The way the regulatory environment influences the innovating firm’s capability to
derive benefits from that innovation - called regime of appropriability
b. The way the government can mandate certain thing to be a standard - forcing
everybody adhere to the standard.
Usually in the competitive scenario, the regime of appropriability plays the key role as it
influences the firm’s strategic decisions to be lead producer, or to enter in to alliances or
to license the technology.
Strategic Actions by the firm: Even though the firm has the technology, the innovation,
and product manufacturing capability unless it gains access to the missing
complementary assets it needs and takes up the right competitive position at the right
time, it would not be able to create the dominant design. Hence an active role by the firm
to understand the context, create strategy to compete with a definite intent and strategy
are important.
Communication cycle between the users and the producers: In the creation of dominant
design the characteristics of the design that will eventually become dominant design are
not known well ahead. Hence it becomes important for the creators of the product to
maintain a frequent communication with the users to get feedback and incorporate
features. The regular and frequent communication also enables the product manufacturers
to bring newer versions of the product with newer features to the market quickly. The
firm has the opportunity to establish its own design as dominant design once most of the
customers agree that all the required features at the required performance level are
present
Robert M. Grant based on the newer ideas states that the “standards” evolve based on
1. The need from the side of the consumers
2. Existence of positive network externalities that arise from
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i. Products users linked to a network
ii. Availability of complementary products
iii. Economizing on switching costs
The key to winning the competition that involves creating the industry standard or a
dominant design involves the following
b. Allies
c. Fast entry, deals with key customers and product cycles
d. Creating complementary assets
e. Defining a balanced way to appropriate the value
Most of these are the ones that have already been discussed. The key addition is the
creation of a positive network effect.
Network effect is created when the value of the product is determined by the product and
the number of users who are using the same product. Positive network effect means that
the value of product increases as the number of users using the product increases.
Presence of such an effect would aid the creation of dominant design as the value of
certain design keeps increasing because more and more users are using products based on
that design.
3.6 Strategic implications for the firms competing to establish a Dominant Design
In competitive scenario when firms are trying to establish a dominant design there are
certain key strategic planning and action steps they can perform in order to compete well
and also to succeed eventually. Even though adopting the advocated strategy and
performing the actions in line with the strategy may not guarantee the success it would
enable the firms avoid the pit falls. Fundamental to strategy formulation is the
understanding of the context in which the strategy is enacted. The other important step is
to understand the key factors that underscore success or failure in the given context.
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This section hence tries to provide
a. Questions based on the answers to which decisions regarding the competitive
context can be made.
b. Some strategic steps that must be performed in order to gain the advantage with
respect to the key factors that influence the success of a firm trying to establish
the dominant design.
The planning steps and actions are derived from the papers, case studies and strategy
literature that analyze the strategy of a firm to gain competitive advantage using the
factors under consideration.
3.6.1 Understanding the context
The firms must first determine if the dominant design is possible. As indicated in section
2.2 the dominant design mostly emerges in product segments that serve the mass market
and where the user needs don’t differ significantly.
Firms may use the following set of questions to determine if the dominant design is
possible at all.
1. Does the product cater to a mass market?
2. Are there positive network externalities?
a. Does the value of the product depend on or increase because it can
interoperate with many other product units of same type?
b. Does the value of the product increase because it has well known
interfaces that could further be used for more value creation for the end
user?
3. Are there economies of scale?
If the dominant design is possible then the firm may decide on the strategy to become the
innovator or follower depending on its industry context, resources it has, and its own
strategic intent. The firm must also understand the current stage of lifecycle for the
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dominant design under consideration. This could be done based on analysis of the data
with respect to the product under consideration. The fundamental questions to determine
the phase of the lifecycle are:
1. Is new functionality being added to the product by adding components or
reconfiguring the components?
2. Is the competition based on the features being offered by the product or is the
competition based mostly on price?
3. What is rate at which new entries or exits happening from the industry?
4. Is there a growth or decrease in the number of variants of the product?
3.6.2 Strategic Plans and Actions
As per paper from Teece9 and also from Grant3, the keys to success for a firm trying to
create a dominant design are
a. Being able to understand the nature of the supporting appropriability regime. The
appropriability varies across various industry segments. Patents are not the best way
to secure appropriation.
b. Ability to build the complementary assets
a. specialized
b. co-specialized
c. generic assets
In regimes of strong appropriability created by a combination of the patents and a tacit
knowledge, or by patents alone, the innovator may have more chance of securing the
profits from the innovation / establishing the dominant design. Hence creating high entry
barriers through patents is desirable.
In weak appropriability regimes the mode of competing changes depending on the phase
of evolution of the dominant design. In the fluid phase the ability of the innovator to stay
close to the market and introduce products in quick succession to understand the
customer needs become important. If innovation involves very low cost associated with
production of variants but very large sunk costs in acquisition of associated
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complementary assets then in that scenario the innovator may lose out if the innovator
has chosen to invest in assets that eventually do not become part of the dominant design
ecosystem. In transitional phase as the competition shifts to price, economies of scale,
access to the complementary assets becomes important. Among the complementary
assets having specialized or co-specialized assets becomes important as these are not
easily accessible when compared to the general complementary assets. Hence in weak
appropriability regimes the profits from innovation may accrue to the firms possessing
the complementary assets.
The decisions with respect to creation of complementary assets and possible outcomes
are summarized well in the paper by Teece. The table (8.4) that indicates the possible
outcomes for the innovators based on the regimes and paths taken to gain access to the
complementary assets will be used in our study to indicate the possible outcomes in the
smartphone market.
The strategic considerations during the fluid phase are due to the essential nature of the
fluid phase. The fluid phase is characterized by experimentation to determine the
characteristics of the eventual dominant design. Hence the organization needs to function
well under uncertainty in this phase.
Any new design must survive first before it can grow to become dominant. The key
aspect to ensuring the survival a new dominant design is that a product built using this
must meet the requirements of at least one set of users completely. It has to be a “whole
product – a product with the minimum set of features necessary to ensure that the target
customer will achieve his or her compelling reason to buy” (Moore)12. Many a times the
companies fail because they do not commit to any one whole product. So as indicated by
Porter in “what is strategy?”11 the firms must be ready to do the tradeoffs and choose
competitive positions.
Firms which intend to create a dominant design need to understand that during the fluid
phase there is premium attached to creating product differentiation through feature
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addition as well as performance improvement. The creators of the product do not know
what customers really need. The products created do not completely meet the customer’s
performance requirements. Hence performance must be improved by deviating from the
existing designs. Apart from this the speed with which these variants with new features or
improved performance in line with user’s expectation is also important. Hence the
interaction with the end user must be frequent and time to market a new product variant
should be very less. In this phase the components that go in to the creation of the product
are not modular. The inter component linkages keep changing. The performance frontier
of the processes used for creating the products is being constantly redefined11 as the
processes are still evolving. Hence the attempts to standardize usually fail as these
attempts go against the need for flexibility and experimentation. The firms committing to
possibly less efficient processes will not be able to succeed in the longer run.
The firms do not know what will eventually emerge as the dominant design most of the
times. So it also requires the firms to commit resources to unproven designs. The
communication interfaces, the product requirements, production processes are not well
defined during the fluid phase. Most of the knowledge is tacit. Hence very strong internal
communication along with the external communication is needed. The emphasis is not on
minimizing the transaction costs. Therefore the firms should focus less on operational
efficiency related measures in this phase and focus more on effectiveness.
It happens that the focus shifts to making the design more modular only when the product
performance and features start exceeding whatever the targeted user segment is
expecting. The users start focusing on price as most of the products satisfy their needs.
Once this happens the design of the product at that moment becomes foundation of the
dominant design. There will be minor variations and dominant design is created. Once
the dominant design emerges the productivity race begins. As the users switch from
feature based preferences to price the transitional phase transitional phase in the dominant
design lifecycle has begun. Hence through out the product and design lifecycle it is
important for the firms to ask questions associated with the context to plan the strategic
actions.
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3.7 Lessons from history for establishing dominant design
3.7.1 PC The architecture introduced by IBM became the de-facto standard for all the personal
computers. The history of evolution of PC provides some good lessons regarding some
right and wrong strategies that can influence the evolution of the dominant design. IBM
was a late entrant to the market of personal computers. There were well entrenched and
technically competent competitors like Apple and Atari. These first movers had time and
technology advantage over IBM. When IBM entered the PC industry it adopted a
completely different strategy for building the product than the ones followed by the
existing participants. The PC was built using mostly off the shelf components and even
the OS (Microsoft DOS) was built outside the company. The operating system was not
exclusive to the PCs manufactured by IBM. IBM also acquired the needed application
development company such as Lotus to provide the users with a suite of spread sheet and
word processing programs. Competitors tried beating the PC with superior technology
and performance, but with systems whose architecture was closed from the hardware as
well as software perspectives. IBM PCs’ open architecture enabled many clones. This
also gave fillip to the application creation activity on the IBM PC platform. The platform
binding was very tight and this created huge network effect as the data exchange
standards during PC era were not as open they are now. This enabled it to become the de-
facto standard in personal computer industry25.
If we look at what made it possible following emerge as the salient points about what
enabled IBM PC to become the dominant design.
1. IBM created the whole product with required office applications.
2. The open hardware and software architecture and many “IBM – PC” compatible
hardware and software created positive network effect.
3. The IBM’s brand name, availability of large number of applications, and
distribution channel reach - Complementary assets enabled PC to become the
computer of choice in business establishments.
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4. The performance of the PC was never as good as other personal computers
offered by Apple or Atari. This lack of performance never became a hindrance as
the performance provided by PC met the user expectations of performance. The
players offering performance became niche. PC in essence disrupted the personal
computer industry model of building closed systems.
Even though IBM PC became the standard, IBM was able appropriate value only through
the sales of the hardware and software. In essence creating a dominant design may not
have been the intent but it turned out so with the sequence of events and the actions
performed by IBM.
3.7.2 BetaMax vs. VHS The competition for the dominance of the VCR between Sony the proponent of BetaMax
and Japan Victor Corporation (JVC) the proponent of VHS format provides some more
interesting lessons for the firms trying to establish the dominant design6. In contrast with
the IBM case, from the beginning the two key firms involved in the competition
understood the importance of creating a dominant design and intentionally moved
towards that. Even though both tried to establish alliances, both tried to produce
technically superior products there were some key differences in the way both players
enacted their strategies. These actions seemed to have played a decisive role in retrospect.
These key differences again relate back to what we have seen in the section providing the
strategic implications for the firms trying to establish the dominant design.
The specific actions of JVC and Sony and key differentiators that eventually led to the
success of one and the failure of the other are as below:
1. Sony was the first to introduce the BetaMax format in 1974, even through it tried
to make this format the standard format in collaboration with others, its actions
did not indicate an accommodative stance. It went and built capacities to build the
systems based on BetaMax even before all the participants in discussion agreed
on the standard. Sony engineers were also reluctant to make changes because they
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had considerable experience in the earlier U-Matic recorder and considered their
technology superior. This made others wary and non committal on the standard.
2. Sony created a product that had only one hour replay time. This was identified as
the key technical short coming. Even then Sony took time to create the tape with 2
hour recording time. This delay enabled JVC to erode the time and product
advantage that Sony had. - If the is not the whole product for any segment of
customers however superior technologically the product will not gain foot hold.
While competing with technically competent customers who have access to IP,
the time is the most important source of competitive advantage.
3. Sony never agreed to become and OEM citing its technological history and
corporate view limiting the number of alliance partners and its scale and reach of
complementary assets. It also underscores the fact that one strategy does not
remain correct in all contexts. On the other hand JVC allied with Matsushita
which had huge built up capacity for manufacturing the VCRs and also had
experience with the manufacturing of the VCRs. Thus JVC got access to the
complementary asset it lacked. Matsushita also was instrumental in ensuring RCA
– the main player in the US market came in to VHS fold by introducing the tape
with capacity to record for 4 hrs. This created a huge shift towards VHS format as
most of the participants who were hedging their bets till that time suddenly
jumped on to the VHS bandwagon. This is clearly indicative of the positive
network effect.
4. JVC also went ahead and recruited smaller allies in the European market whose
demand pattern was in line with the manufacturing capacities it had. This also
pre-empted the European market for Sony.
5. JVC also ensured that VHS became the preferred format at the tape rental firms.
This ensured that VHS became the preferred format across the value chain.
Thus it is very clear that in establishing the dominant design actions need to be in line
with the interest of the group and the firm. The pioneering firm has to play the role of the
supporter to create a network that provides economic benefits to all. The summary of
such a strategy is provided in the paper by the name “Shaping Strategy in a world of
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constant Disruption”. The other key element to note from this study is that even though it
appears that creation of the Dominant design was based on few decisive events, most of
the technology adoption may happen or evolve as cumulative effect of some small events
which lead to the events of much higher significance as indicated by paper on competing
technologies by Arthur5. .
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4 Smart Phone Industry Overview
4.1 Smartphone According to PC magazine19, “A smartphone is a cellular telephone with information
access. It provides digital voice service as well as any combination of e-mail, text
messaging, pager, Web access, voice recognition, still and/or video camera, MP3, TV or
video player and organizer.”
According to Wikipedia20, “A smartphone is a mobile phone offering advanced
capabilities beyond a typical mobile phone, often with PC-like functionality. There is no
industry standard definition of a smartphone. For some, a smartphone is a phone that runs
complete operating system software providing a standardized interface and platform for
application developers. For others, a smartphone is simply a phone with advanced
features like e-mail and Internet capabilities, and/or a full keyboard. In other words, it is a
miniature computer that has phone capability.”
We define the smartphone as a mobile communication device with an identifiable generic
operating system with the ability to add applications. Hence based on this definition any
of the mobile communication devices that have one of the following operating systems
(OS) may be considered a smartphone.
1. BlackBerry OS
2. Linux
3. Mac OS X
4. Palm OS or webOS
5. Symbian
6. Windows Mobile
7. Android
The smartphones running the above OS command more than 90% market share in the
smartphone market as of 2008.
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4.1.1 Features expected of a Smartphone
1. Productivity/ Lifestyle Tools - Smartphones must include organizing features like
calendars and task lists. They should be able to synchronize with home computers
allowing for document viewing and editing. They need to include practical tools
like calculators, map applications and GPS. Ability to support third-party or
browser-based programs that can perform a variety of specific functions would be
good. These third-party applications are becoming a key component of a
smartphone, allowing the user to customize their phones to support their
lifestyles. It is a key feature which allows more data or content to be added to a
phone and results in increased adoption.
2. Voice/Text Features - The main purpose of a phone is communication, and a
smartphone’s first function is as a cellular phone. Smartphones for business
should include all typical cell phone features including speakerphone, three-way
calling, voice dialing and call waiting.
3. Internet Features - Most smartphones can access the internet and display full web
pages. Top ranked phones will connect via Wi-Fi and 3G for faster browsing
speeds.
4. Multimedia Features - Good business cell phones have at least a 5 megapixel
camera with zoom features and the ability to play and record audio and video.
Technical Specifications - To enable the functionality the smartphone feature set that may
be delivered by the possible dominant design based smartphone, the hardware must have
high resolution display with touch screen (4” VVVGA), QWERTY keyboard, large
storage (32-64Gb), Wi-Max, Wi-Fi, high resolution camera (8-16 mega Pixels),
Bluetooth, Infrared, Music player, Motion sensors, GPS device, capability to connect to
external display and input devices, and a battery that supports entire day’s usage.
From the software perspective in addition to generic operating system and capability to
run any application written for the OS hosted by the smartphone it must have e-mail,
office document processing software, voice recognition software, a very good internet
browser.
23
These features may enable the smartphone to disrupt office PC usage and at the same
time deliver the functionality expected from a smartphone.
In addition smartphone may have mobile TV, gesture control, biometric authentication,
RFID solutions.
4.2 Smartphone Industry
4.2.1 History Smartphones evolved from basic mobile phones. The evolution of a smartphone is a
technological discontinuity as noted by Tushman. In smartphones the more specific
phone operating system is replaced by a general purpose operating system which can
manage general purpose computational functions such as running multiple applications
simultaneously, managing files and large amount of memory much better than existing
phone operating systems.
0
5
10
15
20
25
30
35
40
45
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Number of new firms launchingnew handset
Number of new handsetmodels / 10
Cumulative No. Of Patents filedby 3 largest handsetmanufacturers / 100
Figure 2 - Historical mobile phone market: Graph indicating fluid / transitional phase with stabilization in the number of new handset launches and number of patents filed. 4.2.2 Current state
In the smartphone market Symbian OS commanded 49.8 per cent of the global sales to
end users in the third quarter of 2008 (see Table 1) and for the first time its share went
24
below the 50 per cent mark. Nokia's decline in smartphone sales during the quarter, and
continued weakness of the Japanese mobile device market, have impacted Symbian's
share.
Table 1 - Sum of Sales to End Users per Quarter in 2008
Operating System 1Q 2Q 3Q Grand Total
Symbian 18,401 18,405 18,179 54,984 Research In Motion 4,312 5,594 5,800 15,706 Mac OS X 1,725 893 4,720 7,338 Microsoft Windows Mobile 3,857 3,874 4,053 11,784 Linux 2,928 2,359 2,622 7,909 Palm OS 657 744 780 2,181 Other OS 370 353 361 1,083 Grand Total 32,250 32,221 36,515 100,986
The success of iPhone 3G sales in the third quarter of 2008 propelled the Mac OS X to
the No. 3 position in the global OS provider rankings.
In the shorter term, open-source initiatives like Android and Symbian Foundation will
challenge Windows Mobile's licensing model. In addition, the lack of a competitive user
interface will continue to limit Microsoft's mobile device usability when facing
competitive consumer smartphones.
Table 2 - Smartphone Market Share in 2008 - No. of devices sold per quarter in thousands. (From Gartner)
Table 5 - Worldwide Converged Mobile Device Shipments by Operating System, 2007–2012 – IDC
2007 2008 2009 2010 2011 2012 2007–12 CAGR (%)
Symbian 78.307 78.925 92.255 112.623 129.637 145.758 13.2 Mac OS X 3.704 10.076 15.780 19.554 23.183 26.629 48.4 Linux 14.100 20.316 22.505 25.167 28.042 30.268 16.5 BlackBerry OS
12.263 22.857 32.535 42.165 51.711 62.390 38.5
Windows Mobile
13.654 21.526 31.011 42.881 54.850 67.784 37.8
Palm OS 2.258 3.420 4.171 4.868 5.383 5.970 21.5 Other 19 8 – – – – -100 Total 124.31 157.13 198.26 247.259 292.807 338.798 22.2
Table 6 – IDC - Global Mobile Device Sales by Region, 2006–2012 (Source Informa Mobile)
29
Figure 3 – Predicted Smartphone Sales by Region
4.2.5 Traffic by Smartphone Vendor and OS The figures below provided by AdMob23, provides an overview of the total internet
traffic across the various mobile phones. This is an important indication of the various
applications and content access features across these smartphones. This is an important
indicator of future adoption of the phones and their OS.
30
Figure 4 – Traffic on the US Smartphone in August 2004
The table lists the smartphone traffic and is followed by an overview of the key findings.
Table 7 – Traffic against Top US Smartphone Manufacturers in Aug 2008
Manufacturer Share of Smartphone Traffic (%)
Monthly Change (%)
1 RIM 31.2 0.2 2 Palm 18.7 -0.3 3 HTC 14.2 -1.7 4 Samsung 10.5 1.9 5 Apple 7.8 2.6
Total 82.4
Highlights
1. Smartphones accounted for 23.7% of US traffic in August, up 3.5% since May
2008.
2. The top 5 devices, RIM Blackberry Pearl, Palm Centro, RIM Blackberry Curve,
Apple iPhone and the Samsung Instinct generated 54.1% of US smartphone traffic
in August.
3. RIM leads with 31.2% of US smartphone traffic.
4. Samsung and Apple saw the largest month over month share increases due to the
strong performance of the iPhone and the Instinct.
Section 7.2 indicates the worldwide traffic by manufacturer and OS.
31
5 Analysis of Smartphone Vendors from Dominant Design Perspective. Understanding whether a dominant design would evolve in the smartphone industry is
important and challenging because:
1. The predicted market size of the smartphone industry by 2013 is around 400
million devices at the lowest range. Hence the stakes involved are high for all the
players. Hence making the right moves would need a good understanding as to
how this industry may evolve.
2. The smartphone industry is seeing the entry of new firms, competition based on
features, OS consolidation and competition to build and acquire complementary
assets. These usually characterize the fluid stage of a dominant design evolution
and make the prediction/understanding of the eco-system all the more worthwhile.
3. The emergence of a dominant design usually implies mass market products,
network effects and economies of scale. This may significantly alter the strategy
of a firm due to the varied nature of the risk involved based on the current
position of each of the players.
There are many players in the smartphone industry competing against each other. So even
if a dominant design emerges, it would happen through the de-facto way where feature
based competition allow one of the participants to emerge victorious.
When evaluating the possibility of emergence of a dominant design, we need to evaluate
the eco-system for each of the players since these would eventually lead to dominant
design. An assessment of each key smartphone manufacturer is done using the positional
method, resource based method for the parameters chosen.
5.1 Smartphone eco system The mobile communication device ecosystem may be represented using the diagram
below:
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Figure 5 - Source: MIT Open courseware (Technology Strategy, Spring 2005, Professor Rebecca Henderson) The value chain involves:
1. Chipset and component manufacturers
2. Device design/Device Manufacturing (OEM and ODM belong here)
3. Operating system vendors
4. Application development platform vendors / application developers
5. Mobile network operators
6. Users
The smartphone ecosystem is characterized by weak appropriability regime at the level of
features, but very strong appropriability regime at the level of basic communication
technology and chipset design levels. Thus the suppliers of chipsets can appropriate
higher value. The mobile phone manufacturers, operating system vendors and the others
in the value chain have lower ability to appropriate value based on the IP position.
From the perspective of the device manufacturers the key complementary assets in the
smartphone market are
a. the relationships with the chipset vendors and operators
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b. the reach of the distribution channel
c. the manufacturing capability in order to be able to quickly reach the
market
d. the IP assets
e. availability of applications through the support of developers for the
specific OS used in the smartphone.
The smartphone choice is also impacted by the network effect created due to the
availability of applications and specific features such as number of people on the social
networking sites that the phone provides inbuilt access.
The section below describes the importance of each of the ecosystem partners to a
smartphone. Then the ecosystem for each of the smartphone vendor is analyzed.
5.1.1 OEM/ODM
An OEM is a company that puts their brand name on the device and markets and sells it
via their own and various other channels.
An ODM is a company that actually designs and manufactures the hardware. They either
produce devices with their own brand-names or they build devices for other known
companies, which brand and sell the devices.
Chipset manufacturers and firms involved in device design or manufacturing are
considered as part of OEM/ODM.
5.1.2 Developers Developers write applications that provide useful applications and increase the likelihood
of an adoption of a platform over others.
5.1.3 Mobile or wireless operator (MO) They are a key feature in the distribution channel and contribute the maximum towards
any platform based on new device sales. They determine which OEMS will provide
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hardware handsets, work hand-in-hand with Microsoft on SDKs/AKUsbuild and
differentiate their offerings, and lead the charge in sales efforts to large enterprises. It is
the Mobile Operator that needs to certify and accredit (CA) the device as "approved" on
their particular network before anything hits the market.
5.2 Nokia Symbian Nokia is the market leader and commanded an overall 39% of the mobile phone market
in terms of volume. In the smartphone segment it had 44% market share. (For all the data
refer to Appendices and tables 1-1 to 1-4)
5.2.1 Strategy Corporate Strategy
Nearly 80% of Nokia’s revenue is derived from the sales of mobile communication
devices. It is hence very much prone to any downturn that may occur in this market. To
avoid such scenario, it is trying to diversify in to internet services, navigation services.
Smartphone Strategy
Features and Performance: Nokia has been adding features consistently but without
making these features accessible or usable. The users have consistently indicated that the
device is too clumsy to use. Nokia has been adding navigation capabilities, more
memory, and capability to play music. The earlier smartphones have lacked the required
performance due to archaic operating system and S60 software platform using which all
of Nokia’s smartphones are built. Nokia is also building Linux based internet tablets that
have lacked the traditional mobile phone capabilities.
Internet and Service Integration: Nokia has come up with its own internet based service
portal named Ovi. It provides users facilities to share files, photos. It also provides
internet based e-mail. Nokia has also enabled users to get access to unlimited amount of
music just by paying for the device with its “Comes with Music” scheme in certain
35
countries. Nokia’s smartphones have come with a web browser that has been
overshadowed in performance by the Opera browser packaged with the iPhone.
5.2.2 Mobile Operators Buyers Nokia has been dominant in the volume market. It has traditionally been very weak in the
operator dominated markets due to its strategy to sell unlocked phones or not to
customize the phones for the operators. Nokia even though has had acceptable level of
relationship with European operators such as Vodafone and Orange, its relationship with
operators in key North American market has been very poor. Nokia’s entry in to services
segment has also made some operators wary as services area has predominantly belonged
to the operators.
5.2.3 OEM/ODM Suppliers Nokia is trying to broaden the base of chipset suppliers depending on the type of devices.
Chipsets for smartphones come from Qualcomm or ST Micro which has recently agreed
to merge the mobile chipset business with Ericsson. Nokia sources the basic phone
chipsets from Broadcom. Nokia has been active incorporating the 3G features in phones
with major emphasis on WCDMA and HSPDA. It also entered in to 15 years IP sharing
agreement with Qualcomm that enables it to gain access to some key IP at lower cost
than the historical prices. Nokia is also shifting its manufacturing focus from high cost
locations to low cost locations.
OS and Software: Nokia has based all of its smartphones on Symbian operating system. It
also has application development platform called S60 to enable the deployment of
applications quickly. As indicate earlier Nokia also is the sponsor of Symbian foundation
and agreed to donate the S60 software assets to this foundation so that all members can
use the proven OS and software assets to build phones.
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Apart from Symbian operating system Nokia is also hedging its bets by developing
capabilities in creating smartphones using the Linux operating system by introducing the
Linux based “internet tablet”. Nokia has also acquired the software development toolkit
and framework provider Trolltech to enable it to develop cross platform software quickly.
Complementary Assets Nokia has been in acquisition mode to shore up the software development assets
(Trolltech), navigation related assets (Navtech), and internet content development and
service related assets (Loudeye). It also has very good distribution network and scale
economies in manufacturing. It has closed down high cost manufacturing facilities and
moved manufacturing to low cost locations such as Romania, India. Nokia trying to
preempt the threat posed by open source mobile phone operating environments such as
Google’s Android has created Symbian Foundation by acquiring Symbian Operating
system and providing the Symbian OS freely to the members of Symbian foundation.
Nokia has also ensured that it gains access to critical IP in the mobile communications
devices world by resolving its disputes with Qualcomm.
5.2.4 Developers Network effect creation: Nokia hasn’t been very effective in building a positive network
effect through creation of applications for end users on its mobile phones. Even though it
has tried for long time to get developer support through its developer support portal
called Forum Nokia (http://forum.nokia.com) and events it hasn’t been well publicized
and effective effort. Nokia hasn’t played well with the operators, content providers, and
application developers. There is no feature other than familiarity and brand that can lock
in the users.
User Interface
The biggest challenge Nokia is facing comes in this area as the rules of competing have
been changed here very drastically by Apple which has taken the lead by introducing
many new usability related concepts such as touch based UI and easy access to frequently
37
used functions. Nokia has been very late in reacting to this threat. In late 2008 it has
introduced a touch screen based device and positioned it so that it could preempt the
threat by Apple in mid range Touch screen devices. In the same device it has tried to
move away from predominantly menu driven approach it has used based on the S60
platform.
5.2.5 Summary of Nokia’s Smartphone strategy Strengths
a. Hardware design and scale in manufacturing
b. IP assets
c. Brand
d. Experience in the design of smartphones
Weaknesses
a. Aging OS and software platform
b. Lack of operator support in large smartphone markets
c. Lack of differentiating features
d. Lack of speed in bringing new features to market
e. Lack of support from application developers and content providers
f. Lack of a smartphone that satisfies the needs of a business or home user
completely
Opportunities
a. Has access to fast growing developing world markets
b. Has end to end competence (hardware design, supply chain, IP, low cost
manufacturing, marketing) and assets that can be used to create a true
differentiated device
c. North American market can be addressed if interplay with Operators is agreed
upon.
d. Can play the role of innovator and industry shaper by bringing together other
participants due to its long standing position, technology portfolio.
38
Threats
a. Seen as a laggard / technologically inferior
b. Operators not agreeing to sell Nokia branded smartphones in USA
c. Apple agreeing to license its hardware design and OS. The lock in created by
Apple’s application store becoming a significant threat
d. More Android based phones due to lack of legacy related issues and also due to
support from operators and low cost manufacturers.
Samsung, LG and Sony Ericsson moving away from Symbian foundation and aligning
with OMA to support Android as it happened with Motorola.
Nokia has not had a sense of direction in its smartphone strategy. It has taken the role of
the follower rather than the innovator in the smartphone segment. The feature
introductions such as very good internet browser, touch screen UI, a good e-mail
solution, large storage capacity all have lagged the leaders. It has been able to gain some
allies through its work in the direction of resolving disputes with Qualcomm and signing
a multi year agreement to access IP. These have limited its access to the most significant
smartphone market in the world – namely North America. The service and internet
strategies have not had significant positive impact. The network effects that could be
created by the large number of smartphones produced by Nokia are not present due to
user lock in. At the same time there are significant threats from aggressive, technically
competent new entrants with high degree of feature level differentiation and better
interplay with operators.
5.3 Microsoft Windows Mobile 5.3.1 Strategy Microsoft leases out its Windows Mobile OS and works with other players in the
ecosystem to get it on the mobile phones. At a high level it has adopted a strategy similar
to its PC distribution business. While the Windows Mobile ecosystem shares many
similarities to the Windows OS computer ecosystem, the key difference is that the
39
Windows Mobile operating environment must be customized on a device-by-device basis
and is dependent to a large degree on proper interoperability with specific hardware being
utilized. This differs greatly from the notion of "one standard image" or a "gold image" of
Windows which can be loaded onto virtually all "standard" computers. There simply is
no such thing as "standard" in the mobile world at this point in time.
The adoption of a standard OS increases volume and consistently pressures the price of
component hardware and software downward. And because there is a common software
platform, issues of interoperability are prevented. For example, you have essentially the
same experience on an IBM PC as on an HP or a Dell. The aim of Windows Mobile
seems to be to create a common user experience similar to the full Windows desktop
experience. This makes it easier for a user of a Windows PC to pick up and use a
Windows Mobile device, and it allows enterprises to leverage their existing Microsoft IT
investments.
Windows Mobile is compatible with Windows and the associated software like Outlook
and Exchange server. Also no Client Access License is needed. So enterprises who have
invested in Microsoft PC platform can easily extend to Windows Mobile since Exchange
and others are sunk costs. Also, these software have built-in support for Windows Mobile
which makes integration easy.
5.3.2 Mobile Operators Microsoft has an Enterprise Mobile Solutions Specialist (team of around 16) who works
with the 4 mobile operators namely Cingular Wireless/AT&T, T-Mobile, Verizon and
Sprint. This sales team is the key26 to getting Windows Mobile onto new devices. Also
the fact that it has devices virtually on every network indicates its relationship with the
MOs.
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5.3.3 OEM/ODM
Samsung, Motorola, Sanyo, Toshiba, Palm, HP, Dell, and Audiovox all build for
Windows Mobile27. New companies such as HTC - which makes their own brand of
devices as well as various branded devices for companies like Palm and Pantech, also use
Windows Mobile.
The Microsoft Windows Mobile OEM/ODM ecosystems enjoy economies of scale and
distribution advantages. For instance, a Samsung or HTC device can be bought by
anyone, anywhere in the world from multiple sources. In the US, Windows Mobile is
certified on nearly all the MOs.
Microsoft recently entered into an alliance28 with LG so that 50 of its smartphone models
run on Windows Mobile.
5.3.4 Developers
Windows Mobile provides a standard platform that works well over various providers
and handsets. Also competition among the 12 million users of Visual Studio will keep the
cost of developing for Windows Mobile low; much lower than it would be for Apple,
Symbian, or UNIX devices, which have a smaller developer base and lack the
standardized tools that their Microsoft counterparts enjoy.
Unfortunately, the marketing and sales model for those applications started out mediocre
and got worse over time. There was no software store on device, so users had to go out on
the web to find apps. This cut the number of people looking for applications. Those who
did look online usually landed in the mobile application stores, which over time took a
larger and larger share of the developer's revenue. Eventually, the stores' cut grew to
more than 50% of revenue, making development uneconomical for many companies.
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5.4 Apple Mac OS X 5.4.1 Strategy
Apple is continuing its long-standing practice of following a vertically integrated
hardware/software business model—the "we do it all" approach. The only difference with
its PC business seems to be the “Apple Store” where independent developers develop
content for it.
5.4.2 Mobile Operators
Mobile operators see multimedia applications, such as music and video downloads, as a
major money maker. And for more than a year, the largest players, including Cingular,
Verizon Wireless and Sprint Nextel, have been building services that allow customers to
download music and video and take it with them on the go. But Apple’s strategy of
iTunes with the iPhone is a direct threat to these MO providers because the iTunes runs
off a PC and the user need not download over the air. Thus they cut out the data related
usage dramatically.
So adoption by other MO providers seems remote and could cut out key distribution
channels.
Besides, Apple has tied up with AT&T alone. So existing customers of other MOs will be
left out or are forced to migrate.
Can Apple phones have such a demand to allow them to upstage the MOs?
5.4.3 OEM/ODM
Apple itself is the OEM due to its vertically integrated model. Most of the big OEM’s
like Sony Ericsson, Samsung, Motorola or LG make music-playing handsets by
themselves. So the iPhone will be a direct threat to an existing channel for them.
The ODM ecosystem is not negatively affected. The high sales of the iPhone would be a plus.
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5.4.4 Developers
Apple with its high sales and content adoption makes for an attractive platform to
develop on. Apple keeps 30% of the revenue while 70% goes to the developer. This was
higher than what developers got before Apple stepped in with the iPod/iPhone.
5.5 Palm (Palm OS) 5.5.1 Strategy
That the Palm OS was a dying platform29 was known for quite some time. But the Palm
CEO announced recently (this week around 11-Feb-09) that future versions of Palm
phones will not be released on their old OS. Instead it is moving to a new platform called
webOS30 and it supports CSS, HTML and JavaScript similar to the web. This move by
the former number one PDA maker is a significant step. Also an important feature is the
supposed need only for HTML, CSS and JavaScript to create applications unlike C, C++
which were needed in the past. It supposedly has the capability of unprecedented
integration to existing web services and web sites. This means that existing web
developers can create applications quickly, Palm is also trying to get developers to port
the existing 10000 odd applications onto this new platform.
Palm is also developing an online software market for webOS applications, analogous to
Apple’s App Store and Google’s Android Market.
5.5.2 Developers Palm when it started had a huge developer base. The graph32 below lists the phenomenal
growth of applications from 1998 to 1999.
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Figure 6 – Growth in the # of Palm applications between 1998 and 1999 Unfortunately, the marketing and sales model for those applications started out mediocre
and got worse over time31. There was no software store on device, so users had to go out
on the web to find apps. This cut the number of people looking for applications. Those
who did look online usually landed in the mobile application stores, which over time took
a larger and larger share of the developer's revenue. Eventually, the stores' cut grew to
more than 50% of revenue, making development uneconomical for many companies.
When sales of Palm OS and Windows Mobile devices failed to grow rapidly, the
financial model for many developers fell apart, and the ecosystems faded.
But with the Palm Pre (device based on webOS) attracting good reviews before its release
and the planned launch of a cloud based online Palm Software store, the trend might
reverse for Palm.
5.6 Research in Motion (RIM / Blackberry) 5.6.1 Strategy
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Enterprise Strategy The BlackBerry solution’s leadership in the enterprise market continues to be evident and
there are now over 100,000 BlackBerry Enterprise Server installations33 operating around
the world. RIM continued to enhance BlackBerry Enterprise Server with powerful new
administrative features for IT departments and innovative features for mobile users.
Below is a SWOT analysis35 for RIM -
Strengths
1. RIM's delivery strategy - Mobile applications were delivered using a vertically
integrated model which includes hardware, software and services. Resellers can
charge for maintenance and support as part of a subscription, rather than charge
an annual fee.
2. RIM’s Enterprise Server makes it easy for IT departments to deploy and maintain.
These allow users an easy upgrade path as their requirements grow, without
placing heavy financial and resource burdens on the enterprise.
3. RIM's brand is very powerful and BlackBerry is now almost a synonym for
wireless email.
4. RIM is carrier-friendly and maintains good working relations with them.
Weaknesses
1. Scalability and global coverage - RIM’s business model (selling purely through
operators) means that it is dependent on operators to launch the BlackBerry
service. This takes time, and the cost associated with launching can be high for
smaller operators. Global presence, including small and emerging markets, can be
crucial to win and extend contracts with multinational corporations (MNCs).
2. Security concerns due to the relay centre architecture where all information is sent
and received by BlackBerry subscribers transits, albeit in an encrypted form. The
data transition process via a third-party server would be a corporate security issue.
45
3. BlackBerry is a high-end product that is not cost effective for enterprises wishing
to deploy email across a large part of their organization. Almost all RIM’s
competitors have cheaper equivalents to cater to other segments apart from
enterprise.
Opportunities
1. Differentiated offerings for the various categories of mobile workers.
2. Extend the range of third-party BlackBerry devices by licensing its software.
Threats
1. Large global players such as Nokia, Microsoft and even Mobile Operators have
launched their own branded email services.
5.6.2 Mobile Operators RIM historically has good relations with the mobile operators and has made it an
important distribution channel. RIM sees this use of the mobile operators36 as one way to
prevent commoditization in the smartphone market.
Even for its application store, RIM is working with its carrier partners to provide carrier-
customized, on-device application centers to help foster after-market application
downloads. The BlackBerry application center will allow each carrier to offer a
convenient catalog right on the device where a customer can discover and download
applications.
5.6.3 Developers
There are currently more than 600 BlackBerry Alliance Members33 offering BlackBerry
applications for both enterprises and individuals. RIM continues to provide an open,
standards-based development platform and supports developers with robust tools and
technical assistance. The BlackBerry JDE provides developers access to almost every
functional component and application on a BlackBerry smartphone, including the camera,
46
BlackBerry Messenger and GPS APIs, support for numerous audio formats for routing
playback, and XML and Web Services for use in application development. The
BlackBerry JDE has been downloaded by more than 125,000 registered developers and
the growing BlackBerry development community is expected to significantly expand the
number of applications available for the BlackBerry platform.
RIM plans to launch the application storefront in March 200934 and BlackBerry
application developers can begin submitting their applications and content for inclusion
in the storefront in December 2008. The storefront will allow developers to set their own
prices for applications and developers will retain 80 percent of the revenue generated
from their applications. RIM is working with PayPal, a leading global online payment
service, to provide consumers with a convenient and trusted way to pay for applications
within the new application storefront, right from their BlackBerry smartphone.
Organizations that have deployed BlackBerry® Enterprise Server or BlackBerry®
Professional Software will retain control of what applications can be downloaded to
BlackBerry smartphones within their corporate deployments.
5.7 Google Android Android is a relatively new software platform for mobile devices that includes an
operating system, middleware and key applications. The operating system is free and can
be customized fully. Even the applications developed will have equal access to the phone
resources as the core applications unlike the iPhone. There is an Open Handset Alliance37
consisting of mobile operators, handset manufacturers, semiconductor companies,
software companies, and commercialization companies. Google has ensured the co-
operation of these members of the eco-system to ensure that handsets are manufactured
with the Android OS and sold to the customers. Google has made a huge upfront
investment rumored to around 150 million US dollars.
Google’s strategy38 seems to be to monetize Android in the long run using its bread and
butter advertising business. With more smartphones coming to the market it sees a huge
potential of extending its various Internet services to the mobile. And unlike the PC
47
world where Microsoft Windows owns the market, Google does not want to loose out
here. By ensuring a free viable OS, it ensures that no other platform has a monopoly.
Also, it plans to have features like when users sign-up with their Google account
credentials, their online contacts and calendar appointments can be downloaded to the
mobile phone. The tie-in to these personal services is important to Google as it hasn't
made as much headway as Search when it comes to more deeply personal uses of its
services such as e-mail, photo sharing, and social networking.
5.7.1 Factors for Android The biggest plus for Android is that comes for free and with ability to modify the source
code. Coming from Google, the OS is expected to be better than the current existing
phone OS platform. So the handset manufacturers are expected to use this platform.
5.7.2 Factors against Android
1. Managing the Handset Alliance – One of the key objectives with Android is to
create a standard free OS which will help more of Google’s services to be
accessed. For this buy-in from the major alliance players would be crucial. But
there are a few issues already40. T-Mobile lobbied for VoIP features to be
removed as most operators like T-Mobile, O2 and others expressly exclude Voice
over IP usage from their "unlimited" internet access package. But Hutchinson
Whampoa's Three network - which offers free Skype to all its users. There would
be similar conflicting issues with each of the players and maintaining the alliance
would be difficult. Also, AT&T and Verizon are noticeably absent from this
alliance.
2. Adoption – Google is ultimately dependent on all the partners mentioned in the
eco-system to get Android commercial adoption. None of the open alliance
partners have pledged exclusivity to Android.
3. Long term support – Google would need still further investments to keep the
project going over the long run. Other opportunities would stretch this project
since no direct revenues would be attributed to this project.
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4. Platform Fragmentation – As each of the partners adopts and customizes the
platform, they would definitely create differentiators which mean customizations
to the platform. It is debatable then as to how standard the OS would be.
5. Vested MO Interests - The main problem for all the cellular carriers around the
world would be the availability to download and use free applications that could
block almost every communications product they sell. A user does not need to pay
for GPS mapping service anymore. He can simply download a free one that taps
into Google Maps. Why pay for text messages to his friends when he can
download an instant messaging client? In fact, why pay for cellular minutes at all
when a user can download Skype, GTalk or other client and just use his data plan?
OS such as Android threaten carriers with a loss of control over the applications
on the phones on their network and they may find themselves becoming nothing
more than wireless Internet service providers, forced to compete on price and
bandwidth.
6. Vested Handset Manufacturer Interests - Because the handset/hardware
manufacturers would not want control to eventually to go the software platform
like in the PC industry.
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6 Future Smartphone Trends and Possible Scenarios The analysis in the above section shows that most of the key players are ramping up on
their phone platforms apart from creating online application stores for getting more useful
content/applications available. The rules applicable to the ecosystem players are also
changing. Hence it is not possible to predict a clear winner or the emergence of a
dominant design pattern. So the subsequent sections look at key future trends and its
impact on the various players in the eco-system.
The key evolutionary trends are:
1. Data oriented device becomes the norm
2. Differentiation through feature / functionality addition
3. Internet based services become integral part of smartphone offering
4. Move towards open / Open source mobile OS from proprietary OS
5. User Interface evolution
6. Rise of outsourced manufacturing, ODM and search for economies of scale
7. Enterprise adoption of smartphones will increase
The subsequent sections focus on these key trends and the outcomes for each of the
players.
6.1 Data oriented device becomes the norm
Chipset Vendor
Push towards 1. Better power management 2. Incorporating network connectivity protocol stacks 3. capability to do data input and output at a high rate over the network and inside the device
Mobile OS provider
Push towards 1. OS that does power management 2. Capability to manage large amount of data (akin to desktop OS) 3. Search and retrieve may become part of the OS
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Device Manufacturer
Has to 1. Create devices with large memory 2. Can provide storage of data on the network in co-operation with the operator 3. Ensure accessibility to required data efficiently and effectively
Design and industry implication
Need for 1. High upload/download speeds 2. Higher battery life 3. Different ways to connect to the network 4. High storage capacity 5. Ability to store and retrieve data quickly 6. Ability to interoperate with other devices to transfer data 7. Better data processing applications 8. Security of stored data becomes very important 9. Retrieval of accidentally lost data also is important
Application and content developer
1. Applications must be capable of handling diverse types of data. 2. Application developers can not get carried away by the storage capacity, as the OTA transfer charges may be very high. 3. Data security becomes important in applications.
Mobile Network Operator (Operator)
1. Provide users with data oriented plans. 2. Can think of opportunities to provide the user the data storage services
User 1. User may do away with the computer as most of the data processing functionality seen in today's computer may be provided on the mobile phone.
The key impact of this will be felt by the device manufacturers, the network operators
and the users. The network operators will have the biggest say as they act as the pipe
through which all the data flows. Hence to realize the need for the data oriented device
the mobile phone manufacturers and operators must work together. The smartphone
manufacturers are building capability in the smartphone to access the network through
wireless local area networks to bypass the constraints imposed by the operators in
exchanging the data over the mobile phone network.
6.2 Differentiation through feature / functionality add ition Chipset Vendor 1. Mobile phone on a chip??
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Mobile OS provider
OS needs to 1. Have true multitasking capability 2. To be modular to be able to incorporate newer requirements 3. have capability to manage diverse hardware
Device Manufacturer
1. The feature addition and performance improvements need to keep happening till it meets the needs of at least one segment of users at least. 2. The architectural reconfiguration may be one option to provide better performance. The improvement in each components capability must also keep pace with needs. 3. Should be focused in creating a variety of smartphones targeted at specific sub segments of smartphone users for speedy evolution. 4. As mobile phone operating system gets commoditized, the hardware layer or the layer above the OS will be the key to adding features. Hence focus on hardware, and application layer to create differentiation.
Design and industry implication
1. Component and Architectural innovation remain possible 2. Growth in the variety of the products offered 3. Time to innovate remains key differentiator 4. Processing power needed in the devices will be high 5. Need for variety of well integrated usable and useful applications 6. Opportunity for vendors with tightly integrated software and hardware stacks by providing better performance
Application and content developer
1. The application developers can take advantage of open OS, enhanced hardware capabilities to create new applications.
Mobile Network Operator (Operator)
1. Operators can try to differentiate their own mobile phone offerings through more tightly integrated applications and services.
User 1. User may choose the specific device from a variety of devices on offer. 2. User also has a greater say in which variants are retained.
The key influencers of this trend are the smartphone manufacturers and the users. To
move towards establishing dominant design, as we have seen the device manufacturer
needs to bring products with varying features in quick succession to the market. The
target customer segment should also be very well defined for the device manufacturer.
This is in line with expectation during the fluid stage of the emergence of the dominant
design.
6.3 Internet based services become integral part of smartphone offering
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Chipset Vendor
Mobile OS provider 1. Browser and web application runtimes may need to become integral part of the OS.
Device Manufacturer
1. May try enter in to service provider space with manufacturer branded service portals (iTunes, Appstore, Ovi etc) 2. Conflict with the network operators who have been the principal beneficiaries of service orientation
Design and industry implication
1. Fight for gaining control of the services market opportunity among various participants 2. Web browsers and web application runtimes become the key.
Application and content developer
1. The application and content developers can create applications and content that is meant for devices that are constantly on the web.
Mobile Network Operator (Operator)
It must enable high speed access to internet through the infrastructure it operates, otherwise customers may move away.
User Will start using the smartphone as the preferred device to connect to the internet rather than the PC.
The device manufacturers need to build device lock-ins and generate additional service
revenue through services hosted on the internet and users needs to be on the internet
constantly are the key influencers of this trend. The data oriented device trend supports
this. The users usage of the internet will be dependent on the network infrastructure and
cost of access, both of which are controlled by the operator.
6.4 Move towards Open Source OS from Proprietary OS Chipset Vendor
Mobile OS provider
1. Has to create a well defined binding for all the important chipsets 2. Has to differentiate based on performance. 3. Can differentiate based on the facilities provided to manage diverse hardware seamlessly. 4. Need to provide well defined and backward compatible interfaces to access OS functionality by the platform and application developers.
Device Manufacturer
1. Provides choice 2. Reduces the software development and maintenance costs. 3. Well defined OS programming API enable vendors to create OS agnostic application development platform layers. These provide portability and enable applications to be deployed on multiple hardware platforms.
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Design and industry implication
1. Standardization of OS functionality and loss of differentiation at the OS level. Differentiation possible only through choice of different OS. 2. Modular OS 3. May lead to further fragmentation as need for differentiation through performance is high. 4. Magnitude of smartphone vendor adoption and application developer support (Network effects) shall determine the success of the OS 5. Enables value chain disintegration - most complex software component in the mobile phone (OS) can be an off the shelf component.
Application and content developer
1. Provides opportunity to create best in class applications without having to go through intermediate platform layers.
Mobile Network Operator (Operator)
1. Enables operator to enact the "operator branded smartphone" strategy with ODM, Open OS, and outsourced app development.
User
The users choice to pay for the proprietary OS will depend on the differentiation that the device with proprietary OS provides. It also depends on users view of getting locked in to some platform.
Open Source Operating Systems: Symbian, Linux, Android Proprietary Operating Systems: Windows Mobile, Mac OS X, Blackberry OS
Very risky if the OS does not evolve to support the newer features. Provides opportunity to new entrants without incurring OS licensing costs.
Provides the higher value appropriation opportunity to the firms manufacturing devices. This risk mitigation strategy may adversely impact the speed and feature addition capability of mobile device manufacturers. Highest market share at the moment making it attractive for developers to build applications. Attractive to the large MVNO that create own branded phones. Nokia, Sony-Ericsson
Open source
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Tighter integration and greater opportunity to differentiate with performance and features. Opportunity to charge premium. Low risk, but requires higher investment. Unless licensed, OS will be limited to the device from specific vendor. Will evolve as niche player in the face of competent open source alternative. RIM, Apple
Allows deployment of proprietary OS till the alternatives are found. Minimizes the risk that may arise by completely switching over to Open Source OS. Mostly firms use Windows mobile OS in addition to some open source mobile OS. HTC, Samsung, LG, Palm
The most likely eventual scenario in this case would only have fewer Open Source
operating systems and fewer Proprietary operating systems. The majority of the market
would be using the devices based on open source operating systems. The firms like Apple
like with its strategy similar to the one adopted during era of Macintosh computers may
choose to become a niche high end player. Most of the other firms would use a mix of
open source OS as these would provide highest value appropriation opportunity for them.
Some firms like HTC may choose to provide support to enterprise users by using
Windows Mobile as that may provide easier access to many applications that get used in
the day to day office work.
6.5 User Interface evolution Chipset Vendor 1. Need to drive larger displays and responsiveness
Mobile OS provider 1. Support for GUI with multiple types of data input and output are a must.
Device Manufacturer
1. Multiple interfaces must exist for receiving user input and provide output. Integration through touch, voice, writing and gesture based control are all valid. Context awareness with the help of sensors is the key. User interface rather than being reactive may be made proactive with context awareness.
Proprietary
Hedge Don’t hedge
Mobile Phone Manufacturer Stance
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Design and industry implication
1. Opportunity for context aware, proactive user interface with different input methods such as touch, voice, and writing.
Application and content developer
1. Applications must work with more than one type of data input and be capable of providing the output using different methods.
Mobile Network Operator (Operator)
User
1. Enables user to be more efficient. 2. As the functionality gets added, easier access to
functionality through good UI will become more important
The biggest influencers of this trend will be the operating system vendors, mobile phone
manufacturers and users. The trend is influenced by feature addition trend. This trend is
favorable to the device manufacturers such as Apple and RIM who have tightly
integrated hardware and software assets.
6.6 Rise of outsourced manufacturing, ODM and search for economies of scale
Chipset Vendor The ability of the chipset vendors to negotiate premium prices would decrease as there would be cost pressures.
Mobile OS provider The OS that gets chosen by OEM/ODM will obviously have larger share and will survive.
Device Manufacturer 1. Can reduce the amount of time taken to market. 2. Reduces the resource commitment needed
Design and industry implication
1. Need for modularity 2. Value chain disintegration rather than integration
Application and content developer
The application development if not done in house, the independent developers and 3rd party developers stand to gain.
Mobile Network Operator (Operator)
1. Enables operator to enact the "operator branded smartphone" strategy with ODM, Open OS, and outsourced app development.
User Will not get devices that provide differentiated performance or usability. The user would choose devices based on cost.
This trend is important because the ODM and OEMs are gaining the critical knowledge
and eroding the time advantage that the other innovators have built over them. This trend
will have great influence if the open source OS gains ground. This trend in combination
with the Operator dominance can enable the power to move away completely from the
traditional mobile phone manufacturers like NOKIA, LG, Samsung etc.
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6.7 Enterprise adoption of smartphones will increase Smartphones will gain more and more market share in the years to come and will be high
on the list of CIOs for deployment within the organization. The mobility/accessibility that
comes with it is high and will override any security issues that are bound to come in
especially when it comes to accessing critical enterprise data. The features that would be
needed from a smartphone from a commercial perspective would be –
1. Corporate deployment features
2. Phone features (including voice quality)
3. Web access, e-mail and messaging options (Use of 3G or WiFi)
4. Security safeguards – most companies deploying smartphones still do not have a
strategy for the same because they are mainly used for email.
5. Productivity applications
6. Battery life.
This enterprise segment will be critical for any of the smartphone vendors and its eco-
system as they will be able to fully utilize the capabilities offered besides providing
greater revenues.
Chipset Vendor
The smartphone seems to be converging to the Web. More and more productivity applications will make their way onto the smartphones. This necessitates increased computation needs. So chip manufacturing would be crucial. Intel’s foray into mobile chipset manufacturing is an indicator of the same.
Mobile OS provider
Enterprises would want more controlled OS rather than fully open source platforms because of issues with upgrade and maintenance. So maintenance and providing a vision for your platform is essential for enterprise adoption. All the platforms including open source will have to be managed to avoid platform fragmentation and subsequent consistency issues.
Device Manufacturer
Enterprise usage would necessitate greater battery power so that on field personnel can work throughout the day without re-charging. So battery enhancements need to be there.
Design and industry implication
Like PCs, the smartphones would have to have QWERTY keyboards for easy and fast typing. Therefore innovations in key board design and UI would be needed.
Application and content developer
Scope for third party infrastructure management solutions would arise. Existing ERP and other product vendors would also start looking at this segment and can deliver customized offerings. This could be a key differentiator in these segments.
Mobile Network Operator (Operator)
Enterprise usage entails heavy usage. Hence the tariffs would have to go down else switching to WiFi may become rampant. They would also have to be provide more value added services to keep the enterprise customers locked in.
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User
Just like a PC, the smartphone will get cluttered with multiple applications and diverse functionality. User interface and familiarity may end up becoming a key lock-in.
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7 Conclusion It can be inferred from the previous sections that the smartphone market currently is in a
state of flux and undergoing dramatic changes in each of the target (consumer as well as
enterprise) segments. The roles of the various players in the smartphone eco-system are
being re-defined. The feature additions are still in progress, no one vendor has been able
to zero in on the exact set of features that the customer wants. So the eventual dominant
design for the smartphone cannot be predicted as of now.
But as we have seen from the evolution till date, the current state and the evolutionary
trends, we believe that we are in the fluid stage of dominant design evolution for the
smartphone. We can make the following predictions regarding the evolution -
1. The themes of performance improvement, feature addition and consolidation at
the levels of device chipset as well as the operating system will progress in
parallel.
2. Once the smartphone is able to provide basic document processing, web browsing
experience comparable with PC, the performance improvement or device
architectural changes would happen at lower rate and we will enter transitional
phase. At this instance whatever elements go in to the making of the smartphone
and their architectural arrangement may define the dominant design. In this phase
there would eventually be a few operating systems (open source or proprietary)
deployed on majority of the smartphones. Thus there could be a dominant design
in terms of the features and OS features as in the case of the PC.
3. This scenario of few players in the OS but maybe multiple hardware players all
following standard specifications just like the PC industry is a very favorable
scenario for the mobile operators as they could get the own hardware
manufactured through and OEM/ODM in combination with a specific OS. The
network operators would emerge as the key players and device manufacturers will
face the scenario similar to that faced by the PC manufacturers of current date –
that is of dwindling margins and survival of the players with economies of scale.
This is a highly probable scenario as chipsets are trying to include more mobile
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phone functionality on a single chip, operating systems level consolidation is
happening and network operators control a scarce resource namely “Spectrum”
and hence are firmly entrenched. This is also the most likely situation in which a
dominant design would emerge. Only if there is no dominant design the device
manufacturers will be able to differentiate based on the features.
4. The few smartphone players who would work well with the operators and provide
users with applications and content they require will eventually stand to gain due
to access to complementary assets and network effects.
5. Vendors like Apple and RIM seem to be in the middle. They realize that revenues
due to handset sales will soon be outweighed by data service based revenues. A
standards based OS eco-system may work either ways for them. Apple or players
following walled garden strategy or differentiated performance through integrated
hardware and software will eventually become niche players as it has happened in
PC industry.
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8 Appendices
8.1 Glossary
Term Meaning
3G
Third generation mobile phone technology, the first generation being analog voice and the second being digital voice with limited data connectivity. There is some disagreement about the minimum download speed that a 3G technology must offer; the term “2.5G” has come into use for technologies like EDGE that offer data at rates comparable to wireline dialup connections or slightly faster.
ARPU
Average revenue per user. The amount of revenue generated by the average user of a mobile service. Generally expressed on a monthly basis, ARPU is calculated by dividing the total applicable revenue (e.g., revenue from voice services, total subscriber revenue, etc.) by the average number of subscribers during the period.
Bluetooth
A radio frequency communications technology designed for relatively short range communications (up to about 10 meters) between devices such as computers and peripherals, mobile handsets and headsets, etc.
BREW
Binary Runtime Environment for Wireless. An application development platform for mobile applications developed by Qualcomm; also refers to the certification and distribution program that Qualcomm administers for BREW applications.
CDMA
Code division multiple access. A digital cellular technology that uses the entire frequency band available for each communications session at a single base station, keeping them separate by assigning each a unique code. CDMA is used in Korea, by Verizon and Sprint in the U.S., and by some carriers elsewhere in the world. About 13% of mobile subscribers worldwide are currently on CDMA networks.
CDMA EV-DO
CDMA Evolution-Data Optimized. A 3G technology in the CDMA family, offering typical download speeds of 300-500 kbps. CDMA EV-DO Rev A increases typical download speeds to 450-800 kbps, and is sometimes referred to as a 3.5G technology.
CDMA2000 1xRTT CDMA Radio Transmission Technology. A 3G technology in the CDMA family.
Direct to consumer
Sometimes abbreviated as D2C. In the mobile context generally refers to the sale of content and application directly to the consumer, without going through the mobile operator’s sales channel. Nokia’s Ovi program is an example of D2C marketing.
EDGE
Enhanced Data Rates for GSM Evolution. A data communications standard in the GSM family; it is sometimes referred to as “2.5G” because its typical download speed of 120 kbps is between GPRS and true 3G technologies like UMTS.
Generation
In the context of wireless mobile communications, used to refer to more or less distinct stages of technology with evolving network data speeds. “First generation” refers to analog mobile communications. “Second generation” uses digital technology, and supports typical data rates of 9.6 or 14.4 kbps. Enhanced second generation technologies like GPRS are sometimes referred to as 2.5G, and support 56- 128 kbps. “Third generation” (3G) supports data speeds of 144 kbps and higher. 4G is being discussed, with multi megabit data rates, but the term tends to be used somewhat loosely.
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GPRS
General Packet Radio Service. A data communications standard in the GSM family; it offers typical download speeds of 56 kbps and is considered a 2.5G technology. GSM Global system for mobile communications. A digital cellular technology that uses time division multiplexing (TDM) to assign different time slots to different communications sessions at a single base station. About 86% of mobile subscribers worldwide are on GSM networks.
HSDPA High Speed Downlink Packet Access. A data communications standard in the GSM family; it is sometimes referred to as a 3.5G standard, since it offers download speeds of 1 Mbps and higher.
i-mode A packet-based mobile data service developed by NTT DoCoMo, used by other operators around the world.
Interactive voice response Sometimes abbreviated IVR. A process in which a user’s spoken words and keypad entries are used to conduct a mobile transaction.
Location-based information
Information in which either the mobile user’s location or the location of a point of interest or both are critical elements. Examples include turn by turn driving directions, restaurant and entertainment information keyed to the user’s current or projected location, and traffic updates. In some cases the mobile users input current location and/or destination manually (for example, by entering a zip code); alternatively, the handset or application can automatically detect the location, typically either through GPS capability embedded in the handset or through cellular tower triangulation.
MNO
Mobile network operator. A company that owns and operates network facilities to provide mobile communication services to individual and corporate customers (e.g., Vodafone, AT&T, NTT DoCoMo). Compare to MVNO.
Mobisode A short video segment created or re-purposed for delivery on a mobile handset.
MOU Minutes of use. A common measure of the traffic volume generated by a mobile user. Generally expressed in minutes per user per month.
MVNO
Mobile Virtual Network Operator. A company that provides mobile communications services to end users over facilities owned by an MNO. MVNOs may own and operate some of the network assets required to provide services, or they may simply market services and provide customer support. Virgin Mobile and Tracfone are examples of MVNOs.
NFC
Near Field Communication. A very short-range (1-2 inches) radio frequency communications technology used most frequently in card-reading applications (e.g., transit passes, “contactless” credit cards, mobile phone payment systems).
ODM
Original design manufacturer. A company that designs and manufactures mobile phones to an operator’s specifications, typically for sale under the operator’s brand name. Flextronics and HTC are examples of handset ODMs. Compare to OEM.
OEM
Original equipment manufacturers. In the mobile phone world, the term is typically applied to firms like Nokia, Samsung, Motorola, and Sony Ericsson that design and manufacture handsets that are predominantly sold under the firm’s brand name, although they may be co-branded with a mobile operator. Compare to ODM.
Off deck See off portal.
Off portal Refers to any channel of delivering content or applications to a mobile user that does not involve the mobile operator.
On deck See on portal.
On portal Refers to any channel that relies on the mobile operator to deliver content or applications to a mobile user.
Over the air Delivery of content and applications directly to the mobile device using the operator’s mobile network. Compare to sideloading.
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Porting Modifying content or an application designed for one platform so that it will run and display properly on another.
Postpaid
A payment system for mobile phone use in which the consumer is billed periodically, typically monthly, for mobile phone usage incurred during the preceding month. Postpaid customers generally are on one- or two-year contracts. compared to prepaid.
Prepaid
A payment system for mobile phone use in which the consumer pays in advance for a certain amount of talk time and/or data usage. As the initial credit is used, the consumer can “top up” the account by making additional payments. Prepaid accounts generally do not require a contract. Compare to postpaid.
Premium SMS
A way to use SMS communications to generate payment by the mobile user. Typically, a premium SMS message will carry a special rating code that alerts the mobile operator to add the amount of the transaction to the customer’s bill.
Quick Response QR
A two-dimensional bar code used primarily in Japan. Initially used in industrial parts tracking, QR codes can be used to disseminate mobile content. A mobile user takes a picture of the QR code, in a magazine ad, for example with a camera phone. The phone decodes the content and initiates the appropriate action.
Short codes
Short phone numbers that, when sent an SMS message by a mobile device, cause a pre-programmed response, such as recording a vote on a reality TV show or sending users a ringtone or other digital content.
Sideloading The practice of downloading content to one device, such as a PC, then transferring it to another device, such as a mobile phone.
SMS Short message service. A system for sending and receiving short text messages on a mobile device. Synonymous with “text messaging” or “texting.”
UMTS Universal Mobile Telecommunications Standard. A 3G data communications standard in the GSM family; it offers typical download speeds in the range of 220-320 Mbps.
Walled garden Refers to the practice of a network provider allowing a subscriber to access only content and applications offered or authorized by the provider.
WAP Wireless Application Protocol. A set of specifications that allow mobile devices to access the Internet.
8.2 The smartphone market data
Table 1-1 Worldwide: Smartphone Sales to End Users by Vendor, 3Q08
3Q08 Market Share
3Q08 3Q07 Market Share
3Q07 Growth
3Q07-3Q08 Nokia 15,472 42.4% 15,964 48.7% -3.1% Research In Motion 5,800 15.9% 3,192 9.7% 81.7% Apple 4,720 12.9% 1,104 3.4% 327.5% HTC 1,656 4.5% 1,315 4.0% 25.9% Sharp 1,239 3.4% 1,535 4.7% -19.3% Others 7,626 20.9% 9,643 29.4% -20.9% Total 36,515 100.0% 32,753 100.0% 11.5% Note: For HTC we only count the company's own-branded devices. The devices that HTC designs and which have the operator's brand are given separately under the operator’s name in our statistics. Source: Gartner (November 2008) Table 1-2
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Worldwide: Smartphone Sales to End Users by Operating System, 3Q08
3Q08 Market Share
3Q08 3Q07 Market Share
3Q07 Growth
3Q07-3Q08 Symbian 18,179 49.8% 20,664 63.1% -12.0% Research In Motion 5,800 15.9% 3,192 9.7% 81.7% Mac OS X 4,720 12.9% 1,104 3.4% 327.5% Microsoft Windows Mobile 4,053
11.1% 4,180
12.8% -3.0%
Linux 2,622 7.2% 2,884 8.8% -9.1% Palm OS 780 2.1% 383 1.2% 103.3% Other OSs 361 1.0% 345 1.1% 4.6% Total 36,515 100.0% 32,753 100.0% 11.5% Note: The "Other OSs" category includes sales of Sharp Sidekick devices based on the Danger platform.
Source: Gartner (November 2008) Table 1-3 Worldwide: Smartphone Sales to End Users by Region, 3Q08
3Q08 Market Share
3Q08 3Q07 Market Share
3Q07 Growth
3Q07-3Q08 North America 10,033 27.5% 5,978 18.3% 67.8% Western Europe 8,646 23.7% 6,817 20.8% 26.8% Asia/Pacific 7,343 20.1% 8,237 25.1% -10.9% EEMEA 4,868 13.3% 5,030 15.4% -3.2% Japan 4,648 12.7% 6,066 18.5% -23.4% Latin America 976 2.7% 625 1.9% 56.2% Total 36,515 100.0% 32,753 100.0% 11.5% EEMEA = Eastern Europe, the Middle East and Africa. Source: Gartner (November 2008)
Table 1-4 , Source: Gartner (November 2008) Worldwide: Smartphone sales world wide by vendor, region and by operating system per year. 2008 only up to 3rd Quarter (In thousands) Years
Vendor Region Operating System 2,006 2,007 2008 Grand Total
Nokia United States Symbian 320 481 291 1,091 Western Europe Symbian 10,261 17,126 13,595 40,982 Asia/Pacific Symbian 15,910 23,886 16,481 56,277 Japan Symbian 245 18 116 379
Middle East and Africa Symbian 8,350 11,860 8,804 29,014
Eastern Europe Symbian 3,277 5,398 4,261 12,935 Latin America Symbian 503 1,642 1,795 3,940 Canada Symbian 34 54 16 104 Nokia Total 38,899 60,465 45,359 144,723 Research In Motion United States Research In Motion 3,589 7,837 11,526 22,952 Western Europe Research In Motion 1,109 2,324 2,315 5,748 Asia/Pacific Research In Motion 210 365 413 987 Japan Research In Motion 3 10 7 20
Middle East and Africa Research In Motion 17 41 68 126
Eastern Europe Research In Motion 18 56 84 158
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Latin America Research In Motion 66 130 164 360 Canada Research In Motion 483 1,006 1,129 2,618 Research In Motion Total 5,496 11,768 15,706 32,970 Apple United States Mac OS X 2,953 4,528 7,480 Western Europe Mac OS X 350 1,846 2,196 Asia/Pacific Mac OS X 370 370 Japan Mac OS X 275 275
Middle East and Africa Mac OS X 1 1
Eastern Europe Mac OS X 35 35 Latin America Mac OS X 128 128 Canada Mac OS X 155 155 Apple Total 3,303 7,338 10,641
HTC United States Microsoft Windows Mobile 120 406 526
Western Europe Microsoft Windows Mobile 725 2,114 2,436 5,274
Asia/Pacific Microsoft Windows Mobile 130 859 886 1,876
Japan Microsoft Windows Mobile 35 164 136 334
Middle East and Africa
Microsoft Windows Mobile 40 169 149 358
Eastern Europe Microsoft Windows Mobile 168 232 167 568
Latin America Microsoft Windows Mobile 12 15 19 46
Canada Microsoft Windows Mobile 45 65 110
HTC Total 1,109 3,719 4,264 9,091 Sharp United States Other OSs 986 1,183 692 2,860 Western Europe Other OSs 33 18 51 Asia/Pacific Symbian 10 10 Other OSs 5 12 17 Japan Symbian 3,338 5,673 3,199 12,210 Latin America Other OSs 5 0 5 Canada Other OSs 10 10 Sharp Total 4,387 6,885 3,891 15,163
Samsung United States Microsoft Windows Mobile 277 1,268 1,449 2,994
Western Europe Symbian 22 54 655 730
Microsoft Windows Mobile 91 452 486 1,029
Asia/Pacific Symbian 700 86 53 839
Microsoft Windows Mobile 176 340 393 909
Linux 34 91 41 166
Middle East and Africa
Microsoft Windows Mobile 3 5 8
Eastern Europe Symbian 3 3
Microsoft Windows Mobile 4 28 32
Latin America Microsoft Windows 1 1 1
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Mobile
Canada Microsoft Windows Mobile 26 40 66
Samsung Total 1,303 2,325 3,151 6,778
Fujitsu Western Europe Microsoft Windows Mobile 8 11 19
Linux 5,192 4,841 3,228 13,261 Panasonic Total 5,195 4,841 3,228 13,264
Palm United States Microsoft Windows Mobile 468 846 499 1,813
Palm OS 1,310 1,438 2,016 4,764
Western Europe Microsoft Windows Mobile 59 166 91 316
Palm OS 70 11 81
Asia/Pacific Microsoft Windows Mobile 7 59 54 120
Palm OS 44 42 86
Middle East and Africa
Microsoft Windows Mobile 1 5 3 9
Palm OS 5 5
Eastern Europe Microsoft Windows Mobile 1 9 15 25
Palm OS 4 4
Latin America Microsoft Windows Mobile 14 22 7 42
Palm OS 124 214 159 497
Canada Microsoft Windows Mobile 13 31 6 50
Palm OS 96 58 6 159 Palm Total 2,215 2,902 2,855 7,972 NEC Japan Linux 4,599 4,111 3,274 11,984 NEC Total 4,599 4,111 3,274 11,984
Motorola United States Microsoft Windows Mobile 900 1,304 558 2,762
Other OSs 120 341 461 Western Europe Symbian 12 116 70 198
Microsoft Windows Mobile 16 58 16 91
Linux 1 101 7 110 Other OSs 5 6 11 Asia/Pacific Symbian 10 5 15 Microsoft Windows 48 42 89
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Mobile Linux 4,001 1,734 647 6,382 Other OSs 7 43 50 Japan Symbian 34 6 40
Middle East and Africa
Microsoft Windows Mobile 2 3 1 6
Linux 12 0 12
Eastern Europe Microsoft Windows Mobile 2 2
Linux 11 11 Latin America Symbian 12 12
Microsoft Windows Mobile 7 74 65 147
Linux 17 365 360 742
Canada Microsoft Windows Mobile 24 65 2 91
Motorola Total 5,016 4,039 2,176 11,231 Sony Ericsson United States Symbian 28 26 3 56 Western Europe Symbian 283 461 154 898 Asia/Pacific Symbian 316 455 412 1,183 Japan Symbian 1,089 1,839 588 3,516 Linux 111 111
Middle East and Africa Symbian 144 87 68 299
Eastern Europe Symbian 209 462 284 955 Latin America Symbian 15 20 18 53 Canada Symbian 3 3 Sony Ericsson Total 2,086 3,350 1,637 7,073
Others United States Microsoft Windows Mobile 17 13 37 67
Palm OS 2 2
Western Europe Microsoft Windows Mobile 45 54 66 165
Palm OS 1 1
Asia/Pacific Microsoft Windows Mobile 488 323 225 1,036
Linux 6 242 205 453
Middle East and Africa
Microsoft Windows Mobile 12 30 36 78
Eastern Europe Microsoft Windows Mobile 16 26 38 80
Latin America Microsoft Windows Mobile 2 3 5 10
Canada Microsoft Windows Mobile 2 4 5
Others Total 592 695 612 1,898
T-Mobile United States Microsoft Windows Mobile 351 820 534 1,705
Western Europe Microsoft Windows Mobile 359 616 276 1,252
Eastern Europe Microsoft Windows Mobile 4 22 22 47
T-Mobile Total 715 1,458 832 3,005
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Cingular United States Microsoft Windows Mobile 629 1,029 401 2,059
Cingular Total 629 1,029 401 2,059
Pantech United States Microsoft Windows Mobile 39 406 445
Pantech Total 39 406 445 Mitsubishi Japan Symbian 2,224 2,376 670 5,270 Mitsubishi Total 2,224 2,376 670 5,270
Asus United States Microsoft Windows Mobile 4 4
Western Europe Microsoft Windows Mobile 15 33 27 75
Asia/Pacific Microsoft Windows Mobile 6 39 38 83
Middle East and Africa
Microsoft Windows Mobile 3 13 9 24
Eastern Europe Microsoft Windows Mobile 15 81 82 177
Asus Total 38 166 160 363
HP United States Microsoft Windows Mobile 98 81 33 212
Western Europe Microsoft Windows Mobile 199 162 67 428
Asia/Pacific Microsoft Windows Mobile 111 51 28 189
Middle East and Africa
Microsoft Windows Mobile 26 39 11 76
Eastern Europe Microsoft Windows Mobile 39 58 36 133
Latin America Microsoft Windows Mobile 29 52 26 107
Canada Microsoft Windows Mobile 11 11 1 23
HP Total 511 454 202 1,167
Toshiba Western Europe Microsoft Windows Mobile 53 50 103
Asia/Pacific Microsoft Windows Mobile 56 57 52 164
Japan Microsoft Windows Mobile 16 23 39
Eastern Europe Microsoft Windows Mobile 7 7
Toshiba Total 56 125 132 312 LG Western Europe Symbian 17 35 52
Microsoft Windows Mobile 40 59 99
Asia/Pacific Microsoft Windows Mobile 8 32 40
Linux 243 249 35 528
Middle East and Africa
Microsoft Windows Mobile 2 2
Eastern Europe Microsoft Windows Mobile 3 7 10
LG Total 243 317 171 731
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i-mate United States Microsoft Windows Mobile 82 89 64 235
Western Europe Microsoft Windows Mobile 141 81 3 225
Asia/Pacific Microsoft Windows Mobile 52 37 33 122
Middle East and Africa
Microsoft Windows Mobile 173 197 83 454
Eastern Europe Microsoft Windows Mobile 48 45 6 98
Latin America Microsoft Windows Mobile 4 4 1 9
Canada Microsoft Windows Mobile 7 7 4 18
i-mate Total 507 460 193 1,160
O2 Western Europe Microsoft Windows Mobile 289 363 178 830
Asia/Pacific Microsoft Windows Mobile 187 95 283
Eastern Europe Microsoft Windows Mobile 4 6 10
O2 Total 477 462 184 1,123
E-TEN Western Europe Microsoft Windows Mobile 15 52 22 89
Asia/Pacific Microsoft Windows Mobile 21 29 50
Middle East and Africa
Microsoft Windows Mobile 12 12
Eastern Europe Microsoft Windows Mobile 18 63 84 165
E-TEN Total 33 136 147 316
Verizon United States Microsoft Windows Mobile 184 118 113 415
Orange Western Europe Microsoft Windows Mobile 294 430 206 930
Eastern Europe Microsoft Windows Mobile 6 8 14
Orange Total 294 436 214 944
Vodafone Western Europe Microsoft Windows Mobile 51 177 163 391
Eastern Europe Microsoft Windows Mobile 11 7 18
Vodafone Total 51 188 170 409
TCL Asia/Pacific Microsoft Windows Mobile 109 46 12 167
TCL Total 109 46 12 167
BenQ Mobile Western Europe Microsoft Windows Mobile 3 3
Asia/Pacific Symbian 21 18 39
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Microsoft Windows Mobile 13 2 15
Middle East and Africa
Microsoft Windows Mobile 3 3
Eastern Europe Microsoft Windows Mobile 1 1
Latin America Symbian 1 1
Microsoft Windows Mobile 2 2
BenQ Mobile Total 44 20 63
Mio Technology Western Europe Microsoft Windows Mobile 53 41 17 111
Asia/Pacific Microsoft Windows Mobile 49 47 8 104
Middle East and Africa
Microsoft Windows Mobile 2 5 7
Eastern Europe Microsoft Windows Mobile 37 37 74
Latin America Microsoft Windows Mobile 2 2
Mio Technology Total 142 132 25 298
Sprint United States Microsoft Windows Mobile 140 184 324
Sprint Total 140 184 324
Cyberbank Asia/Pacific Microsoft Windows Mobile 7 7
Cyberbank Total 7 7 Grand Total 80,186 122,316 100,986 303,487
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8.3 Worldwide traffic by Manufacturer and Operating System as of January 2009
71
8.4 Contract/Integrate strategy table for innovators – Specialized asset case
The table to plan the contract or build capability within the firm (integrate) strategies
under different appropriability regimes (Source – paper by Teece9)
Weak Appropriability Strategy Strong
appropriability Innovator has better access to complementary assets than follower
Innovator lags followers in access to complementary assets
Outcome
Innovators and followers have a better position than owners of complementary assets
Contract Contract Contract
Innovator will win Innovator should win Innovator or follower will win and asset owners will not benefit
Complementary Asset owners are better positioned to extract the profits than innovators or imitators
Contract if competitive terms can be agreed, otherwise integrate
Integrate Contract (to limit exposure)
Innovator will win, but may have to share profits with asset holder
Innovator should win Innovator will probably lose to followers and asset holders
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9 References
9.1 Books and Journals
1. Paper: Dominant designs, technology cycles, and organizational outcomes - Research in Organizational Behavior (1998), 20, pp. 231-266, Tushman M. L. and Murmann J. P.
2. Book: Mastering the Dynamics of Innovation - James M. Utterback
3. Book: Contemporary Strategy Analysis (6th Edition) – Robert M. Grant
4. Book: Strategic Management of Technology and Innovation (4th Edition) – Robert
A. Burgleman, Clyton M. Christensen, Steven C. Wheelwright 5. Paper: Competing Technologies: An Overview – W. Brain Arthur
6. Case Study: Strategic Maneuvering and Mass-Market Dynamics: The Triumph of
VHS Over Beta Michael A. Cusumano, Yiorgos Mylonadis, and Richard S. Rosenbloom
