||Mobile Operating Systems: Windows of Opportunity
||Friday, December 21, 2012
Electronic and Mobile Government, Citizen Engagement, Internet Governance
||Dec 25, 2012
Android dominated the tumultuous smartphone market in unit volume terms in 2012, but some are adamant its reign is only temporary.
On the face of it, 2012 should go down as the year when the title of undisputed smartphone OS champion of the world was awarded to Android. However, new competitors and the fact that few handset vendors are actually profiting from Android suggest the contest is far from over.
“There is a definite threat to Android from Microsoft,” claims Richard Windsor, founder of Radio Free Mobile. The former Nomura analyst concedes that Microsoft’s Windows Phone has got off to a “disappointingly slow start” in terms of shipments, but he insists it offers a more complete experience than Android.
“Microsoft can offer an Apple-like experience at a much lower price,” he says. “Android looks good on paper, but in practice it doesn’t work that well. Apple offers a much more genuinely integrated experience...and Microsoft will as well.”
Microsoft took big steps this year towards realising this vision. In June CEO Steve Ballmer unveiled Microsoft’s first foray into tablet hardware, the Surface, and in October launched Windows 8, the operating system he hopes will deliver a coherent user experience across tablets, PCs and smartphones.
However, Windows Phone failed to carve itself a meaningful share of the smartphone market in 2012.
According to IDC, three out of every four smartphones shipped in the third quarter were running on Android. To express it another way, of the 181.1 million smartphones shipped worldwide in the three months ended 30 September, only 45.1 million were not based on Google’s mobile OS. Second-placed Apple saw iOS device shipments reach 26.9 million in Q3, followed by also-rans RIM and Symbian with 7.7 million and 4.1 million respectively. Windows Phone shipments reached 3.6 million.
“I think that the new [Windows-powered Nokia] Lumias, when all the hype and dust has settled, are not competitive products,” warns Bengt Nordstrom, CEO of consultancy Northstream. “It will take another year and a generation before they can potentially challenge.” He expects Microsoft’s OS market share to grow in 2013 as Windows Phone 8 “bridges the gap in terms of major functionalities” between itself and rivals Google and Apple. “Furthermore, if Microsoft is able to leverage its strong position in services such as Office and unified communications, several enterprises will choose Microsoft, even when it comes to mobile solutions,” he predicts.
While there is no denying Android dominated 2012 in unit volume terms, it became clear over the course of the year that not every Android hardware maker benefited equally from its success. In fact, it could be argued that Samsung was the only handset vendor to make meaningful money from Android sales.
The Korean electronics giant saw revenue at its IT and mobile communications division–which as well as its handset arm also includes its infrastructure and IT solutions operations–steadily grow throughout the year to $24.3 billion by Q3 from $17.5 billion in Q1. Operating profit grew to $5.2 billion from $4 billion over the same period. Samsung consistently attributed its performance to robust smartphone shipments.
Strategy Analytics claimed that the Samsung Galaxy S3, first unveiled in May, overtook Apple’s iPhone 4S to become the world’s single biggest-selling smartphone model in Q3, shipping 18 million units. The research firm’s executive director Neil Mawston predicts the iPhone 5 will regain top spot for Apple in Q4–he estimates the device sold 6 million units in the last nine days of September–but there is no denying Samsung’s S3 has proven “wildly popular” in North America, Europe and Asia.
Meanwhile, none of Samsung’s rival Android players came close to matching its financial performance in 2012.
HTC, which four years ago developed the first ever Android handset, the G1, eked out small quarterly operating profits this year, ranging from a high of $282 million in Q2 down to $168 million in Q3. Between February and August, amid revenue warnings over intensifying competition, writedowns and a slumping bottom line, it was reported that 47 of the Taiwan-based company’s foreign institutional investors had completely sold off their holdings, while a third-quarter profit warning saw more than $1 billion wiped off its market capitalisation in just two days. To make matters worse, in November HTC agreed to pay unspecified licensing fees to Apple as part of a patent settlement. It is not alone on that score though. In August Samsung was ordered to pay Apple $1.05 billion in damages for violating design patents.
Still, HTC is a success story compared to the likes of Motorola, LG and Sony, which throughout 2012 regularly reported more or less flat revenues and operating losses. Notable recent launches from these companies include the HTC One Series, Motorola’s RAZRi, the LG Optimus G and Sony’s Xperia T.
“If you’re an Android maker, life is quite difficult because it’s a question of ‘how do I differentiate?’,” says Windsor. As far as Nordstrom is concerned, it requires being at least on a par with the competition in almost all handset features, and then going further to offer something unique. “In the case of Samsung, the ‘something more’ was the design factor, the technical specs, and the integration of services,” he says.
And what of RIM? The Canadian BlackBerry maker has had another difficult year under new CEO Thorsten Heins as it seeks to reverse its ailing fortunes and effectively reboot its smartphone proposition with its new OS, BB10, which is slated for launch on 30 January 2013.
Until this year, RIM was a staunch advocate of vertical integration. Much like Apple, the company insisted it was the best way to ensure end users got the best out of its hardware, software, and services. However, rumours emerged during the first half of 2012 that RIM was changing its tune, and planned to license BB10 to other manufacturers. This drastic change of direction was effectively confirmed by Heins in August, but no licensing deals have been announced.
And sales are sluggish. According to Gartner, which measures device sales to end users, RIM sold 26.9 million BlackBerrys in the first nine months of 2012. By comparison, Samsung sold 20 million-23 million phones per quarter.
RIM should “sell itself to the highest bidder”, advises Windsor. “It doesn’t have the momentum, it doesn’t have the financial resources, and it doesn’t have the developer support to be competitive.”
Heins would doubtless disagree. BB10 is based on the QNX operating system developed by a RIM subsidiary of the same name. “BB10 is not just a smartphone OS, it’s a new, revolutionary mobile computing platform,” said Heins at BB10’s unveiling in May. “This takes us into a whole new area of mobile computing, way beyond smartphones and tablets.”
RIM’s traditional stronghold was the enterprise segment, but Nordstrom, notes that in the US it has lost “significant ground” to Apple, while Microsoft “is coming up strong” with its own enterprise services offering. “The best area to focus on for RIM is developing countries,” he says.
If that is the case then RIM had better get a move on, because 2012 saw some new players arrive to tap into emerging smartphone markets. Mozilla Foundation, maker of the Firefox Web browser, in July revealed its HTML5-based smartphone platform, Firefox OS. The first devices will be made by TCL Communication and ZTE, and will debut in Brazil on Telefonica-owned Vivo’s network.
In the same month a new company set up by former Nokia employees emerged with plans to revive the Finnish handset maker’s moribund MeeGo OS. Called Jolla, it has renamed the platform Sailfish OS, and is establishing R&D facilities in Hong Kong with a view to tapping into China’s fast-growing mobile market. Despite the focus on China, it announced in November that its first operator partner will be Finland’s DNA.
That is no bad thing, says Windsor. Focusing on China is a “dangerous game”, he says. “It is brutally competitive and horrendously cut-throat.” Windsor insists there remains enough growth in Europe and North America to sustain a company like Jolla. “The [smartphone] market is big enough for multiple players. Jolla is a small company...it doesn’t need a lot of volume,” he says.
So what does 2013 have in store for the smartphone OS market?
“Apple and Samsung will have to prove that they can continue leading the market,” says Nordstrom, while “Google and Microsoft will have to prove they can do more than services.” He expects Google to push its Nexus line of products more aggressively, and Microsoft to develop more of its own hardware.
But Windsor disagrees with this last point. “Surface was more of a demonstration product,” he claims. “It’s more of a message to Microsoft’s hardware partners, rather than Microsoft saying ‘we are going to be more like Apple’.”
Instead, Microsoft is likely to pitch itself as an alternative for struggling Android players. “Microsoft is keen for the other [vendors] to step up commitment and so is unlikely to make it hard for them to make Microsoft phones,” says Windsor.