We ‘ve all heard this before. The story of the bit-pipe future for mobile networks/carriers and the threat of Google and Facebook to the mobile industry status quo. But this time the facts are clear; the dice has been cast and is pointing to a Wintel future for the mobile industry. Bear with me – this is a long argument.

The virgin years of mobile
The mobile industry has rapidly evolved through two decades:
– 1990s growth: The 1990s was the decade of unrestrained growth, building up huge empires on thin air (a.k.a. radio spectrum). Operators invested on building networks with worldwide reach, on increasing spectral efficiency (more bits per pipe, setting 2G to 3.5G standards) and snapping up new subscribers
– 2000s competition: The 2000s was the decade of competition, reality check and disillusionment. Operators invested in competing with more complex tarriffs, deeper device subsidies, unique devices (custom or exclusives) and bundling fancy services on the device (from mobile TV to myFaves and social networking).

Next up: survival
The 2010s decade is about survival. It’s no secret that ARPU (average revenue per user) has been dropping for the last few years, and the much-promised data services have failed to deliver. Plus networks are threatened by the establishment of over-the-top services like OEM-own services (Apple App Store, Nokia Ovi, Sony Ericsson PlayNow, RIM Blackberry services), the entry of alternative payment providers (Apple iTunes, Paypal Mobile, Google Checkout), alternative voice providers (Skype, Google Voice) and of course the myriad of social networking services (epitomised by Facebook and Tencent).

So, how are operators differentiating today beyond tariff games?

- Investing on device subsidies: Network operators are spending big money to snap high-spending customers away from their competitors; for example investing 300-400 EUR on the top models from RIM, HTC/Google and Apple (case in point: Orange France). The subsidies are recouped back from such customers in around 9 months, but without factoring in the disproportionately high cost to the network, where the cost increases linearly per-MB consumed. All this, for a short-lived advantage, no stickiness to the network. Worse than all – operators are pouring marketing and subsidy investments into the same companies – including Apple, Google and RIM – that aim to commoditise their network.

- Selling broadband Internet dongles and mobile WiFi (MiFi) hotspot devices at flat-rate bundles that aim to drive revenues, but at the same time lead to surging network OPEX costs. To appreciate this irony, consider that operator marketing budgets are never linked to the network infrastructure OPEX budgets; and so marketing groups may spend away into fancy deals, while resulting in alarmingly high network costs, especially for network maintenance and upgrades. Operators are investing into the bit-pipe business without knowing how to monetise it.

- Customising devices (a favourite pastime of operators) like Vodafone 360 and Orange Signature that aim to deliver own services on the mobile, while limiting the experience to high-end devices. Although 360 has some strategic attributes (locking customer contacts into the network), its execution has been inefficient to say the least with a team of 250 people at Vodafone needed to launch the service (which could have been accomplished with perhaps 50 people in a software startup environment). Operators are pushing Internet brands to the forefront of the customer experience (see Skype promos from Three and Verizon) for a short-lived advantage of customer attraction.

To sum this all up; operators are investing in their demise, pouring money into the same Internet companies that aim to commoditise them into bit-pipes. Worst of all is they ‘re drawn into a inward spiral, a black hole that is near impossible to escape from; as an operator, if you don’t have the latest devices and cheapest tariffs, your competitors will.

The loss of control points
The situation is much more dire, as the current balance of power in the mobile industry is about to be shaken up. Operators control around 70% of the mobile industry pie of $1 trillion, thanks to three very important control points:

- device subsidies: operators (with few regional exceptions) pour large marketing budgets into promotions and device subsidies, thereby in effect dictating terms to their handset suppliers. Only Apple has been able to challenge this status quo to date, but on a tiny 2% of the mobile market. Yet, a new disruption is appearing in the form of Android that might extend to well beyond a tiny market share, to significantly drop retail price points and render subsidies meaningless (more on this Wintel phenomenon later).

- mobile termination: by design, mobile operators are the exclusive gateway to reaching any specific subscriber. That’s how operators have been able to charge ridiculously high voice and roaming charges (incl. receiver pays model). However, mobile termination is slowly coming under threat as more and more services are being delivered over the network like social networking and VoIP, while flat-rate tariffs for mobile Internet is becoming the norm. Consider that Google might at some point offer free voice calls amongst Android device users. It’s a question of when, not if. But abstracting the service from the underlying network carrier, the service providers assume the mobile termination gateway role, by acting as the service transport across networks and devices.

- payment broker: The premium SMS boom is the best example of how operators have leveraged their billing relationship outside their network, charging often 50-60% commission for reverse billing, i.e. the ability to charge users for a ringtone, game or televoting from their mobile phone bill. Yet, Internet players are now carving up their niche into the operator-own game in the form of Apple App Store (no doubt to be transformed into a payment gateway for third parties) followed by Paypal Mobile and Google Checkout.

Wintel and the Google game
A very important change in industry dynamics is underway. Google’s Android has morphed from a feared entrant to a loved ally, with all handset manufacturers (except for Nokia) investing in Android-powered handsets thanks to Android’s low cost of creating a differentiated handset. In parallel, chipset vendors led by Qualcomm and Mediatek are rolling out out-of-the-box solutions that pre-integrate hardware + a software platform + applications (e.g. Android Market), that can be easily differentiated in both plastics and UI.

These out-of-the-box solutions will rapidly decrease in price led by the impending price competition amongst chipset vendors (led by Mediatek exports) and the advancement in silicon manufacturing (with sub-40nm chips squeezing smartphone capabilities in feature-phone price points). Combined with Android (low cost of UI differentiation + bundled apps market so incremental revenue) this should lead to a diversity of Android-powered phone at $100 retail price points in the 3-year horizon. This is a game where Asian mobile and consumer electronics manufacturers will gladly play, by creating low-cost, on-demand phone + service solutions for media brands and operators.

This is the Wintel game of the PC industry, making its appearance in the mobile industry; only the title of ‘Intel-inside’ is still up for grabs. What’s more, with smartphone prices at $100 dollars, the operator subsidies are going to become meaningless, in effect creating a handicap for network operators and a sudden loss of negotiating power. The tables are slowly turning.

What about Symbian and Windows Mobile, you might ask? We believe Symbian will become a Nokia-only operating system (more this on a future post), while Windows Mobile is driven by short-lived motivations today (a fresh UI and an operator interest in it), which can easily be delivered by Android, once UI design and technology firms release customisable layers on top of Android (something that Ocean Observations is hinting to be working on with Brandroid = Brand + Android).

What about Apple, Nokia and RIM; the few tier-0 handset OEMs that have developed vertical propositions (from hardware to services) will still be able to command premium prices; making this so very similar to the PC industry where you can buy an Apple computer at premium price or get the same functionality for half the price in a PC clone.

The shock to the operators will be like the shock that the music industry got when they woke up one day and realised that the Internet has disintermediated their brick & mortar business model.

All is not lost
Operators can still get their act together. It’s rare that operators have invested in long-term strategy – see Orange’s investment in mega-SIMs in 2007 (albeit betting at the wrong standard). And there might be the odd operator that has the conviction and foresight at the management level to achieve such long-term planning. We ‘ve long advocated that operators should platformise (read: Network-as-a-Service) while creating new control points and meaningful brand deliverables – for a brief analysis see our Mobile Megatrends 2010 deck, especially the chapter on ‘new smart pipe strategies at the intersection of brands and consumers’. Or drop us a line.

Comments welcome as always,

- Andreas

With all the discussion of technology trends on the blogosphere, there are some harsh economic realities creeping up on the handset space. The collective efforts of vendors to deliver great products will lead to an all-out smash-up for market share, bringing steep declines in pricing.

In November 2009 I wrote a note about what Arete saw as the impending dynamics of the mobile device market. I called it Demolition Derby. This followed on from a piece called Clash of the Titans, about how the PC and Handset worlds were colliding, brought together by common software platforms and adopting common chipset architectures. As handsets morphed into connected devices, it opened the door for computing industry players, now flooding in.

New categories of non-phone devices
A USB modem/datacard market of 70m units in 2009 should counted as an extra third of the smartphone market, as it connected a range of computing devices. By the end of 2010, I believe there will be many new categories of non-phone mobile devices to track (datacards, embedded PCs, tablets, etc.), and they may be equal to high-end smartphone market in units in 2011.  Having looked at the roadmaps of nearly every established and wannabe vendor in the mobile device space, I cannot recall a period in the past 15 years of covering the device market with so many credible vendors, most with their best product portfolios ever, tossing their hats in the ring.  I see three things happening because of this:

1. First, a brutal price war is coming. This will affect nearly every segment of the mobile device market. Anyone who thinks they are insulated from this price war is simply deluded. I have lost count of the number of vendors planning to offer a touch-screen slim mono-bloc Android device for H2 2010. The only thing that will set all these devices apart will be brand, and in the end, price.  Chipmakers – the canaries in the handset coal mine – are already talking about slim HSPA modems at $10 price points, and $20 combined application processors and RF. Both Huawei and ZTE now targeting Top Three positions in devices, with deep engagements developing operator brands. They are already #1 and #2 in USB modems.  Just look at the pricing trends ZTE and Huawei brought to the infrastructure market; this will come to mobile devices.

2. Second, growth will rebound with a vengeance. I expect 15% volume growth in 2010, well ahead of the cautious consensus of 8%.  I first noted this failure of vision in forecasting in a 2005 note entitled “A Billion Handsets in 2007” when the consensus was looking for 6% growth whereas we got 20%+ growth for three years, thanks to the onset of $25 BoM devices. Consumers will not care about software platform debates or feature creep packing devices with GHz processors in 2010. Ask your friends who don’t read mobile blogs and aren’t hung up about AppStores or tear-downs:  they will simply respond to an impossibly wide choice of impossibly great devices, offered to them at impossibly cheap prices.

3. Third, the detente is over. The long-term stability that alllowed the top five vendors to command 80% market share for most of this decade is breaking down.  This is not simply a question of “Motorola fades, Samsung steps in” or “LG replaces SonyEricsson in the featurephone space”.  Within a year, there could be dangerously steep market share declines among the former market leaders (i.e. Nokia) to accompany their decline in value share. Operators are grasping control of the handset value chain; many intend to follow the lead of Vodafone 360 to develop their own range of mid-tier and low-end devices. Whether or not this delivers better user experiences, operators are determined to target their subsidy spend to their favourite ODM partners. In developed markets, long-established vendors are getting eclipsed: in 2010, RIM or Apple could pass traditional vendors like SonyEricsson or Motorola in units. RIM and Apple already handily out-paced older rivals in sales value, and with $41bn of estimated sales in 2010, are on par with Nokia.

Hyper competition
So where does this lead us? Even with far greater volumes than anyone dares to imagine, there is no way to satisfy everyone’s hopes of share gains, or profits. With Apple driving to $25bn in 2010 sales and Mediatek-based customers seeking share in emerging markets, the mobile device market is entering a phase of hyper-competition. It is all too easy for industry pundits to forget that Motorola and Sony Ericsson collectively lost over $5bn in the past 2.5 years. More such losses are to come.

Never before have we seen so many vendors acting individually rationally, but collectively insane. Albert Einstein once famously said that “the defintiion of insanity was doing the same thing over and over but expecting a different result”.

The men in the white coats will have a field day with the mobile device market in 2010.

- Richard

[After four years as the #1 rated technology analyst in Europe, Richard Kramer left Goldman Sachs in 2000 to form an independent global technology research group. Arete has 10 years experience dissecting the financials and industry trends in  semis, software, devices and telecom operators, out of offices in London, Boston, New York and Hong Kong. Richard can be reached at richard [dot] kramer [at] arete.net]

The annual Mobile World Congress, besides a circus frenzy of 49,000 people has also traditionally been a barometer of mobile industry trends. This year we look at the under-the-radar trends that may have gone unnoticed, but will make a major impact during 2010-11.

1. Building developer bridges
If there was a theme to this year’s Mobile World Congress it was Developers. This year’s App Planet show-in-a-show gathered 20,000 visitors, making the stands of LTE vendors and the CBoss showgirls look pale in comparison.

Imagine that. After years and years of efforts in ‘pushing’ the next-gen killer technology (on-device portals, Mobile TV, widgets, ..), the mobile industry is finally seeking inspiration beyond its own confines; at the software developers that will generate even more ‘apps for that’ and drive innovation that will actually pay for the bandwidth investments.

The race is on to grab the best mobile developers – and the mobile industry is spending big money on it. This year’s sponsors of mobile developer contests and events are not just platform providers or handset OEMs. Just look at the some of the sponsors of the WIP Jam developer event at MWC: Qualcomm, Alcatel Lucent, Ericsson, NAVTEQ, O2 Litmus, Oracle.

Developer mindshare is expensive as developers have to be attracted away from other platforms which they have invested in; and as such we would argue that the average DAC (developer acquisition cost) is much higher than the average SAC (subscriber acquisition cost). Thankfully there are plenty of marketing budgets to throw into the challenge. Palm is spending $1 million to build its own developer community in a dire effort to win back its once-thriving community of mobile developers.

It’s ironic given that it only took the mobile industry 20 years to learn what the software industry understood since the early 1990s; that the smartest people work for someone else, but they will gladly work for your platform if you give them the right tools and audience. And it’s most appropriate that this realisation is happening right now, as the two industries are coming together in the post-iPhone era.

One of the big announcements at this year’s MWC was the Wholesale Application Community (WAC), the new operator collaborative effort at connecting to developers. WAC is born out of the merge of two initiatives: OMTP’s BONDI (device API specs for securely accessing user information on the device) and the Joint Innovation Lab, JIL (which besides the hype has had delivered only a widget spec). WAC is an intent of operator collaboration, but one which yet needs to decide what it will be delivering.

The GSMA App Planet, WIP Jam, WAC and many other initiatives are trying to capitalise on one of the hottest, yet perhaps understated trends of 2010: building commercial bridges or matchmaking platforms between software developers and the mobile industry. Next question: what’s your platform’s DAC (developer acquisition cost)?

[shameless plug: at VisionMobile, we ‘re running the biggest mobile developer survey to date, spanning 400+ developers, 8 platforms and 35+ data points across the entire developer journey. Best of all, the results will be freely published thanks to the sponsorship by O2 Litmus]

2. Quantum leap in mobile devices
Industry pundits have been overoptimistic about the dominance of smartphones, time and time again.; but contrary to predictions, the smartphone market share has remained at circa 15-17% of sales as phone manufacturers have remained risk averse; Instead of porting high-cost, high-risk operating systems like Symbian and Windows Mobile on mass market phones, OEMs have preferred to patch their legacy low-risk RTOS platforms with high-end features (read touchscreen, widgets and the like) – see earlier analysis here.

Yet the mobile software map is about to change rather abruptly; not because of Android, but as chipset vendors make the leap to sub-40nm manufacturing. Chip cost plays a major role in handset BOM (bill of materials) and that cost is directly proportional to the surface area of the silicon (excluding royalty payments). With the move to sub-40 nm manufacturing processes, you can fit a GPU (graphical processing unit) and even ARM Cortex architectures within the same die size. This means that the smartphone BOM will reduce from $200 to $100 in only 2 years, based on our sources at chipset vendors – and implies that MeeGo, Symbian, Windows Mobile and Android can penetrate into a far large addressable market than was possible before.

Adobe is banking on this very trend, planning (hoping?) that Flash penetration will reach 50% of smartphones by 2010, or circa 150M devices sold per year. Similarly, Nokia sees revenue contributions from S40 handsets dwindle from around 55% in 2009 to 35% in 2011, replaced by MeeGo (circa 10%) and Symbian (circa 55%) – see slide from Nokia’s Industry Analyst event. This also goes to show Nokia’s continuing investment in Symbian, at a time when the future of the Symbian Foundation is shady.

Virtualisation technology is further accelerating the BOM reduction, by allowing the likes of Android and Symbian OSes to sit on the same CPU as the modem stack. OK Labs introduced off-the-shelf reference designs for virtualised Android and Symbian earler in 2009, while at MWC 2010 Virtualogix announced similar deals with ST Ericsson and Infineon. The third (and last!) virtualisation vendor, VMWare (who acquired Trango), is yet to make a similar move.

Last but not least, we are seeing new attempts at re-architecting low-cost smartphone software. Qualcomm is making a comeback with its BREW MP software positioning this as a feature-phone operating system and getting major commitments by AT&T. Kvaleberg (a little-known Norwegian engineering company) has productised its 10-years of feature phone integration know-how into Mimiria, a feature phone OS with a clean-room UI architecture that makes variant creation a swift job requiring only 2-3 engineers to customise. Myriad has announced an accelerated Dalvik implementation to speed up Android apps up to 3x, allowing those to run more comfortably in mass market designs.

3. Analytics everywhere
Another under-the-radar trend at MWC 2010 was analytics, which was making inroads into the feature set of products across the spectrum – from SIM cards and devices to network infrastructure solutions.

Application analytics is the only visible tip of of the iceberg for now, with analytics services available from Adobe, Apprupt, Bango, Distimo, Flurry (merged with PinchMedia), Localytics, Medialets, Mobclix and Motally. There is also plenty of innovation to be had here, with a startup (still in stealth mode) delivering design-time analytics on the type of applications and their use cases. Or another startup which is delivering personal TV program management, and monetising (among others) on the analytics on what TV programs users are watching, searching and sharing.

Moreover, analytics is slowly penetrating into operator networks for delivering smarter campaign management, subscriber analysis or network performance. There is a long list of vendor solutions here from Agilent, Airsage, Aito, CarrierIQ, Rewss, Umber Systems, Velocentm Wadaro and xTract among others. One related under-the-radar announcement was that from SIM manufacturer Giesecke & Devrient (G&D) who is launching a product for measuring network quality on the handset.

Taking analytic to the next level, the GSMA and comScore recently launched the Mobile Media Metrics product. This is the first census-level analytics product for measuring ad consumption and performance, starting with the UK market, which follows the lucrative business model of TV metrics.

Analytics is indeed the most underhyped trend, whose magnitude the industry will only realise in 5-10 years from now.

4. Mobile identity in the cloud
Cloud storage for personal data is ubiquitous on the Internet; Google Buzz, Facebook and Dropbox are perhaps the epitomy of this trend. The mobile industry has traditionally fallen behind, but is rapidly catching up in 2009-10 with the cloud-stored Windows Mobile UI, the social networking connectivity layer on the idle screen as seen in Microsoft’s One App, the socially-connected handsets from INQ Mobile, HTC and Motorola (Motoblur), and the 10+ solution vendors who offer addressbook syncing solutions (Colibria, Critical Path, Funambol, FusionOne, Gemalto, Miyowa, Newbay and many more).

We used to think of user data as migrating from the SIM card (the operator stronghold) to the handset (the OEM territory). Now the data is once again migrating away from the handset to the cloud, the home-turf of Internet players.

This is the next battlefield, in the landgrab to define the interfaces that determine access to our mobile identity. There are two camps competing here; the Internet players who have defined user data access standards (Google, Facebook and Twitter), versus the players who have defined mobile data access standards to date (network operators – see Vodafone 360 and handset OEMs – see Nokia Ovi).

This is one of the important battles that will determine who can reap the most profits out of user information by controlling the interfaces that connect them to the outside world (for background see Clayton Christensen’s thesis on the relationship between interfaces and profits). And it’s also what network operators should be rushing to standardise right now, in one of the last battles that will determine their smart-pipe vs bit-pipe future.

Comments welcome as always,

- Andreas

How much substance is behind the noise of Nokia’s and Intel’s announcement of Meego? A few points to consider.

Nokia, who feels threatened by Google’s Android and Chrome OS efforts, is putting significant  efforts in order to expand into other device categories and bring its Ovi services to more consumers in more places. So a move that brings Maemo – together with Ovi (and the underlying Web-runtime apps and Qt cross-platform) to Intel chipsets is a straightforward strategic win. It will allow OVI services – such as Maps – to get into non mobile devices, especially Automotive (which has been a strategic focus for Intel) and other connected (but wired – after all power consumption is Intel’s Achilles heel) devices such as home phones.

So is Nokia going to bet it’s future Linux devices on a group of Intel engineers? Nokia is smarter than that: Intel software engineering has never been something to write home about. And Nokia has always been careful in maintaining and winning control over strategic areas. So Nokia will either maintain a parallel internal effort or maintain tight control over the ARM port and the overall MeeGo architecture.

Is MeeGo going to really bring Ovi services & Maemo into the hands of tens of millions more consumers? Well, MeeGo open’s a door, but success will depend on the quality of Maemo and Ovi experience. Maemo v6, due late this year, will be catch-up to where Android and WebOS were half a year ago, and were Apple was a year ago. So it is still one or two years behind the rest of the industry. That said, Maemo does not need to be the best – it needs to be good *enough* for ‘mass market’ consumers, so that combined with Nokia industrial design expertise and marketing power, an “object of desire” can still be delivered.

It’s this consumer “Desire” that brings us to the Ovi Services angle – and the question of how good will Nokia Services offering will be. Studying the NexusOne, it is impressive to see how Google seamlessly connected it’s many service offering – creating a compelling integrated experience. From a photo gallery that is both local and web (Picassa), through Google Voice (low cost calls, transcribed voice messages) and an almost perfect navigation and mapping experience (including turn-by-turn voice instructions and maps). Contacts, Email, Calendaring are the basics that are a must have. And Google is quickly expanding into other services (note the recent Aardvark acquisition and Buzz launch). Yes, MeeGo gives Nokia a vehicle to bring Ovi to some other device segments, but can Ovi compete effectively with Google’s breadth of services?

What about Intel? It has been spending hundreds of millions of dollars on a software strategy which does not seem to show a clear path to recouping the investment. Moblin, has not been able to ship in any significant volumes, is inferior to either ChromeOS or Android from a software platform perspective, and lacks any kind of services offering (which is why they needed Ovi). If Intel thinks that software is another part of it’s vertically integrated stack that will differentiate the chipsets, then it does not make sense to open it up and make it an open industry initiative. If Intel truly believe that Moblin should be open and used by competing ARM chipset vendors, then what does it gain from spending those hundreds of millions of dollars on the effort?

Open Source: ChromeOS, Android and Maemo are creating a very different software ecosystem then the one Intel got used to with Microsoft in the 90s. None of the software players is going to generate significant revenues on the device side. Intel exec’s might  want to re-read Andy Grove book, step outside the box and ask themselves if their software effort still makes sense in the 2010 industry context.

And while Intel is spending time on building this software strategy, the chipset market is experiencing a disruptive change, shifting from computing power (where good enough performance is delivered by both Intel and ARM), to battery power and mobility where ARM is clearly superior.  It might be better for Intel to focus it’s efforts back on it’s chipset technology and fix its power consumption problems, because when it comes to wireless devices (either within the home or outside, anything that is not tethered to a power cord), their offering is inferior to ARM, and no amount of software will be able to cover this gaping hole.

What about the rest of the chipset industry? Would the other ARM chipset vendors, such as TI, Qualcomm, Broadcom and nVidia follow path and join MeeGo? It’s hard to imagine that any of those companies will want to entrust their software strategy in the hands of Intel: not only is Intel a direct competitor, it software skills leave a lot to be desired, and it’s long term commitment to the space (as outlined above) is not clear. Is Nokia’s involvement enough of a carrot to entice those vendors into MeeGo? Having Maemo running on top of MeeGo will make insertion into Nokia easier, but Maemo is open source and there is nothing holding the chipset vendors from porting Maemo to their chips on their own or with the help of other independent 3^rd parties. So we suspect Nokia will give it a modest try, but when it comes to purchasing chips, power, performance and cost will still be the over-riding criteria for Nokia.

So, lots of noise that those two monkeys are making, but little impact. MeeGo seems to be cute (qt) and (h)armless, but not a big industry changer.

- Thucydides

[Thucydides Sigs - a pseudonym - has many years of experience juggling computing constraints, mobile software and consumers needs. With that said, imagine listening to a violin sonata not know who the artist is or who composed it. You end up having to listen more carefully in order to make a judgment. He can be reached at thucydides /dot/ sigs [at] gmail [dot] com]

As the author of a location-based application, I get into many discussions with fellow technologists about the future of the consumer location-based application space. Which app is going to win – MyTown, Foursquare, Urbanspoon, Yelp or perhaps flook? Many of my conversation partners believe that there will be one single winning application – one, and only one, location-based application that people install on their iPhone, iPad or Symbian device.

This is a technology-based argument – applications are described as competitive if they use the device’s GPS silicon to determine location. And the argument is unrealistic, to say the least. Do we really believe that Grindr (used by gay people to find nearby partners) co-exists on a device with LocalPicks (used by people of all sexual orientations to find dinner). This is almost as incredible as the claim that UrbanSpoon (also used to find dinner) is a competitor of Bump (used to exchange contact details) because both make use of the iPhone’s accelerometer.

Joking aside, the point I am making is ‘it’s not about the GPS, stupid!’. I wonder why analysts are so prone to put a plethora of different applications in the same bucket and say that they are “competing for the location-based mobile application space” – which is like talking about an app “owning the mobile accelerometer application space”. Presumably this is because the location industry is only now coming of age, and understanding of this market is still immature and to some extent ill-formed.

There are more than 100,000 applications in the iPhone App Store today. Analysts predict that there will be 300,000 by the end of November 2010. It’s safe to bet that thousands if not tens of thousands of those applications are location-based.  Not only that, but new portable computing platforms such as the Nokia Netbook and the iPad now include GPS silicon in addition to LAN and WAN radios. I expect this trend to push down into lower-end netbooks and laptops. Furthermore, we are already seeing the direct creation of geotagged photos by Nikon’s P6000, and I expect more digital cameras to include GPS silicon over time.

Location is becoming a standard computing resource, but that doesn’t mean that all location-based applications are competitors with each other.

A common mistake made in technology analysis and trend prediction is to focus on the technology and what it can do rather than the users and what they want to do. We need to return to first principles and consider the use cases rather than the technology employed to achieve them.

It became clear to me that to find likely winners among mobile location-based applications, I needed to subdivide the space according to use case. So, beginning each use case with the words, “Near me, I want to”, I listed all the major goals that ordinary people have when they are out and about (see diagram below). Please note that this diagram is not intended to be exhaustive. For example, I have not included niche use cases (such as “I want to add a datapoint to OpenStreetMap”) or any enterprise use cases (such as “I want to track my deliveries”).

I’ve included examples of the major iPhone applications within each use case, highlighting the market leader(s) in each case in orange. Potential threats in each use case are shown in red. Broadening this analysis to all mobile applications across platforms, and then to all location-enabled devices is left as an exercise for the reader.

Having broken down the location-based service market, it then makes sense to open the discussion on the winner(s)emerging within each use case. In the rest of this article, I will review and analyse the use cases, categorising each of them using the following variables:

1.  Number of app installations: an indication of relative market size within the examined use cases. (huge, large, medium, small, tiny)

2. Volume: frequency of use. (hourly, daily, weekly, monthly or infrequently)

3. Market turbulence: will this market remain in flux, or settle out to show one or two winners?

4. Number of majors: is this use case likely to be owned by just one or two players? Or is it more likely that many competitors will continue to share the use case, each concentrating on a different aspect that appeals to different people?

Use case: I want to find out where I am and how to get somewhere

This is the standard navigation use case and is the most mature segment of the location industry; it has existed in specialised devices long before GPS silicon found its way into mobile phones, and continues to exist in those specialised devices today. Evidence shows that personal navigation can achieve well over 100% penetration – not just per person (I have a TomTom device for driving, a Magellan one for trails and an iPhone for everything else) but also per device (I purchased OffMaps for my iPhone even though I already have a good free navigation system in the shape of Google Maps – OffMaps offers me mapping without data downloads which is useful for locations with no cellular coverage, or for when I’m roaming).

Opportunities: indoor navigation
As we all know, GPS navigation is hampered by a lack of a clear view of the sky, sometimes even failing to operate well among tall buildings, let alone indoors. Continuing technological innovation will open up indoor navigation – most current systems rely on Bluetooth transceivers. Micello Indoor Maps is the only application in this space that is available for iPhone today.

Use case: I want to search to find the nearest X

The generic location-based search space is large, frequently access by users and hotly contested by search providers. Google is of course top of the pile, and will ensure it stays there. It is difficult to see who has the resources to oust them. Yahoo has failed to date, particularly on mobile. In the iPhone space, a move by Apple away from Google Maps as the built-in map application would be disruptive, but I do not believe it is likely.

Significant search verticals do exist today (some are listed below). Those who provide functionality that Google does not (listed in parentheses after each vertical) are likely to continue their success. Those that add innovation and efficiency in user interface compound their advantage (UrbanSpoon is a key case in point).

iPhone applications such as AroundMe that aggregate common verticals (providing access to nearby coffee shops, petrol stations, cashpoints and more) are successful, but are vulnerable to Google, having little defensible IP or innovation in UI.

Significant Search Verticals
1.  Restaurants – hotly fought over in the iPhone app space, with applications such as Yelp, UrbanSpoon, LocalPicks, OpenTable and of course the traditional guide books such as Zagat and Michelin (Google beater: user generated reviews, editorial content, booking engine)

2.  Real Estate – several players in the iPhone space, such as Zillow, Trulia and more (Google beater: access to proprietary data).

3.  Travel applications – iPhone applications such as Lonely Planet (Google beater: editorial content).

Sub use case: find things that my friends like
Several mobile applications (for example, Loopt, Rummble and Whrrl are betting on the recommendation aspect of local search: the theory goes that better search results are obtained by providing personal recommendations from my friends. In my experience, these applications suffer from the ‘empty room’ syndrome – I don’t have enough friends on any given service, and hence my experience using them is impoverished (as an aside, that’s why we implemented a follow model in flook for finding local secrets, rather than mandating mutual friendships).

Sub use case: I want to find my friends
iPhone applications such as BrightKite and Loopt allow the user to find her friends, as do check-in games such as Gowalla and Foursquare (discussed later). Again this use case suffers when only a subset of your social graph is using the service, and this is what makes it so vulnerable to the threat from Facebook.

Today Facebook owns more of the social graph (for friendship, not business relationships) than any other application, and the company has also shown that it can make great mobile applications. But to date Facebook has not chosen to add location to the mix. When it does (and surely it is when, not if), then both the previous sub use cases are threatened. Facebook has the social graph the incumbents lack and the brand recognition to take these use cases mainstream.

Sub use case: I want to meet strangers
There are two main aspects to this use case – meeting strangers for sex, and meeting them to talk. Strangely (or perhaps not!) the former is far better catered for than the latter in today’s iPhone marketplace. The difficulty with using an iPhone application to find someone to share a conversation with, particularly for women, is this – how do I know what the other person’s motives are, and why should I trust them? Considering this real user concern shows us a couple of opportunities (not threats, since there are no real incumbents today).  LinkedIn could allow us to meet and greet nearby business people, either if they vouched for by our own contacts, or, if we prefer, if they are merely working in the same field as us. Similarly Facebook could introduce us to friends of friends, enabling us to choose our own risk profile based on how far away in the social graph we will allow our potential conversation partners to be.

As an aside, here is an interesting observation supporting my assertion that location is not a single product space: Facebook and LinkedIn use the same “technology”. They both map the social graph, and yet they fulfil different user needs: “I want to stay in contact with my friends” vs “I want to discover business opportunities through people who have worked with people I have worked with”.

Use case: I want to explore and discover new stuff

It’s important to differentiate this use case from search. Users search for what they know is out there, whether it’s a pizza restaurant or the nearest ATM. Users discover something they didn’t expect. Discovery is exploratory and the user is open-minded, whereas search is task-based and the user is narrow-minded.

This use case is in its early days in the location-based marketplace, and there are few applications dedicated to discovery. Even if an application is open as to what it finds (and very few are), then most applications are dogmatic as to “search order.” For example, Foursquare adds user tips to each location. Finding something cool in one of these is not totally expected and is not usually a subject of a search (as such). However this location and its attached tips are always further away than the previous location and its tips – ordering is strictly by distance, limiting the discovery aspect somewhat.

UrbanSpoon has a discovery aspect too – and one that has proved very popular with its users. They shake the iPhone, and, one-armed bandit like, UrbanSpoon rotates its reels and suggests somewhere unexpected to eat. But this discovery aspect is tempered by the narrow subject matter – don’t turn to UrbanSpoon unless you’re hungry.

Tellmewhere claims to deliver recommendations based on your previous preferences. Similarly Sherpa claims to have a unique learning system to deliver content learned from the user’s likes and dislikes. In practice, I’ve found the value added above the standard search provided by, for example, Yelp or Rummble, to be nugatory. Nevertheless, I’m watching both applications with interest.

My own application, flook, also plays in the location-based discovery space. Since flook is new compared to the other applications I’ve discussed, I hope you’ll forgive me for giving you a quick overview of flook and pointing out those aspects of our service that back up my assertion. Flook lets users discover and share local secrets in the form of flook cards – these are full-screen images with overlaid text that can be flipped to show a map and comments on the back. Flook shows the user all nearby cards, whether their subject is a local restaurant or some cool street art – hence we are not narrow in subject matter. Also, flook cards are not shown to the user in strict distance order – instead, a card that is deemed “interesting” is pushed nearer to the user, using our Stream Position Algorithm (SPA). Our thesis is that someone would rather walk five blocks for free pizza at an art gallery opening night than one block to a run-of-the-mill pizza restaurant.

Use case: I want to have conversations with people nearby

This market segment is nascent. Apps such as graffitio, in which users leave messages at “location-based message boards” are finding it hard to attract the number of users necessary to avoid the empty room syndrome. Geo-located tweets and their support in applications such as Tweetie 2 are an obvious incomer to this space, although even with the massive number of Twitter users, it is rare to find a conversation taking place between nearby strangers. Presumably this is because Twitter is real-time – miss a tweet and it’s gone, whereas graffitio’s message boards can wait hours for a new comment.

Flook too plays in this space. It’s early days, but we are finding that conversations between strangers are happening more frequently than we expected – perhaps because flook lends a conversation the concrete subject of a particular flook card and its photograph.

Use case: I want to express my feelings about a place

Analysis of user-generated content (UGC) applications suggests that around 10% of users create the content that the other 90% of users consume. This is borne out in my own experience with flook. Clearly then, any UGC application must take note of this key use case, encouraging the production of great content for its main search or discovery use case. This encouragement can be in the form of rewards – Gowalla’s badge for checking in at five tech start-ups is an example – but is often associated with the sub use case I show in the diagram – that of gaining reputation for content creation. My investigation of friend-based recommendation-based search applications shows that they often ignore the need to reward their users, presumably in the belief that altruism towards friends is sufficient to encourage content creation.

Users can express their feelings about a place using a variety of media – the spoken word with AudioBoo, text with Rummble or a geo-located photo with Flickr. Flook and postcard creation applications such as PostMan offer the ability to combine a photo with a few well-chosen words. In addition, the user can commit variable amounts of time to self-expression – from the couple of seconds to make a geo-located tweet to the hour or so to write a detailed, thoughtful review for Yelp. Because of these varying user needs, my expectation is that there will continue to be a variety of applications playing in this space, with one or two owning each content/time subdivision. Note that this use case – the need to express one’s feelings and be creative – clearly differentiates these UGC applications from check-in applications such as Foursquare and Gowalla (discussed in the next use case) – and yet analysts continue to pit these applications against each other.

Use case: I want to play a game

It is clear from experience that games, and even games categories, come and go. People complete games, or tire of them, and historically have shown fairly low allegiance to a particular brand or experience.

There are three major types of location-based games in the market today. Treasure hunts have been around for a long-time, with geocaching pre-dating GPS silicon on mobile phones – although there is now an iPhone application for this too. Gowalla plays in this space too, with the user unearthing “virtual gifts” when she checks into a new location.

Check-in applications include MyTown (the clear market leader), FourSquare and Gowalla. They get their name because the user “checks in” to a particular location to say she is there – this information can be sent to her friends via Twitter or Facebook if she chooses. Games vary in their strictness – you have to be very close to a location to check-in with Gowalla, less so with MyTown – and in the number of check-ins they allow per hour, from an unlimited number with MyTown to very few with Foursquare. Yelp has recently added check-in to its offering, and because of its size and its stature as a serious application rather than a game, I regard it as a threat in this area. Whether or not you agree, it’s clear that there are many very similar check-in applications on the iPhone alone, and consolidation is likely. There is already beginning to be a backlash against the mindlessness of the check-in applications – here the Guardian points out that there needs to be more depth to hold user attention.

A third-type sub use case has been tried on the iPhone, but not yet very successfully – the alternate reality game. This is where the game overlies its imaginary world on the external reality – converting your local coffee shop into a den of werewolves, for example. There is clearly an opportunity for Blizzard to charge their 11.5 million World of Warcraft users for mobile gaming, or to offer rewards or coupons for in-game check-in to real world locations. If Blizzard fail to move, there is a huge opportunity here for a new player.

Use case: I want to read local news

This is a nascent market, and a difficult one to crack, since local news providers are fragmented. Foursquare’s partnership with Metro could lead the way. News aggregation applications such as Broadersheet are ideally placed to move into this area.

Use case: I want to find out what jobs I have to do here

A minority market, with OmniFocus owning the space at the moment.

Use case: I want to map my routes

Many sports enthusiasts are interested in this space, and there are a variety of iPhone applications serving it, such as MapMyRun and Trails. In this use case it’s probable that a variety of applications will continue to serve their specific sports or niches.

Use case: I want to track my child or pet

This is another nascent market, and not likely to be a major one. There are no current iPhone applications in this space.

And finally..
This concludes my dissection of today’s consumer mobile location-based application space, with particular reference to iPhone applications. What are your thoughts? I welcome your comments here or by email.

- Jane

[Jane has been working on mobile devices since 1995, when she joined Psion to run their operating systems team. Jane was the lead author of Symbian OS Internals, published by Wiley in 2005, and the sole author of Demand Paging on Symbian, published by Symbian in 2009. She is currently a co-founder of Ambient Industries, whose application flook the location browser is available as a free download in the Apple App Store. Ambient Industries is funded by Eden Ventures and Amadeus Seed Fund. Jane can be reached at jane (at) flook (dot) it]

Low cost Android devices have been forming a large part of R&D activity for some time now. Behind the scenes of the mobile industry all major players – including semiconductor vendors, software vendors, software services companies, ODMs, OEMs, and network operators – are putting considerable resources into rolling out low cost Android phones. It’s a silent revolution in the making that, once set in motion, should see Android shipments lift off from the single-digit millions.

So how low is ‘low cost’? Reports of $75-$110 reference designs are emerging from Asia; these are fully featured touchscreen devices, albeit with an EDGE (2.75G), rather than a 3G baseband chipset.

Why the interest in low cost Android? Low cost means volume which in turn means market share, and a consistent platform for the provision of services. There are multiple parties with a compelling interest in having a low cost Android device.

Semiconductor companies are under pressure to better address the market for  Android platforms. Qualcomm is the overwhelming leader in 3G chipsets for Android phones in Western markets. Their competition such as ST Ericsson, Broadcom and Infineon are responding and a low cost Android niche may be a way for them to break into the current Qualcomm dominance.

The majority of handset manufacturers are investing heavily in Android. With so much effort going into a single platform, there is an inevitable pressure to be able to scale that platform on as wide a range of phones as possible. While the lion’s share of press coverage is on ‘smartphones’, the mass volume still is in lower end devices.

Network operators are already developing and deploying ‘operator packs’ comprising of specific operator applications and service enablers, designed to run on Android devices. Longer term, Android may end up affording operators the standardised  platform for devices they have been craving for years; a standard platform they can consistently deploy their own ‘pack’ on. That’s assuming operators can gain access to low cost, mid-range Android devices on which they can deploy standard operator packs on and therefore extend the operator experience to the mainstream consumers.  Moreover, with subsidies widely practiced in the mobile industry, it is in the best interest of the operators to reduce the cost of Android phones.

Google’s brand power hurts Android differentiation
There has been much mainstream publicity on the launch of the Nexus – yet another Android smartphone – which does not seem to be materially different from – say – the Motorola Droid. The reason for the mainstream press is simple. Nexus is a phone sold by Google, not by a phone manufacturer. The brand is king here. As an experiment, I did a straw poll on my Facebook network of (mainly) non-industry friends. Out of 100, only 2 people knew what Android was in the context of mobile phones. They all knew who Google was though. Google is a brand people will buy, Android is not.

This powerful brand recognition enjoyed by Google forces Android-based manufacturers to further differentiate their devices. After all the general public will buy a Google phone over an Android phone so you had better come up with something different. This may force manufacturers to ‘hack’ Android more and more in order to differentiate, and low cost could be a means to the same end.

So if low cost Android is going to emerge as a category how are we going to get there and what are devices going to look like? Perhaps more importantly, would you buy one? If the user experience is radically different to Android smartphones, is there still a place for a low cost Android device? For example, if you didn’t have fancy graphics, smooth transitions, or if the touchscreen was a bit harder to use, or even if there was no touchscreen at all?

Low cost means design sacrifices
Well, the cost of phone components is going to have a big influence on what low cost Android devices look like and what are they capable of. They may even be unrecognisable as Android phones by current standards.

As an example, iSuppli’s teardown of a G1 estimated the cost of components as $143.89. Of this cost;

- Baseband (ARM11 for multimedia, ARM7 for modem): $28.49 (20% of BOM)
- Touchscreen: $19.67 (14% of BOM)

Baseband and touchscreen are the two biggest cost factors. Reduce the requirement for expensive processors and touchscreens and you go a long way to lowering costs.

Therefore, running an Android device on a single core chip would reduce costs significantly. A single core EDGE chip sales for well under $10 – but the question is how to run Android on it. A quick tech lesson in basebands is in order here.

Baseband chips are needed to run the modem (software) stack in a phone. To run a modem you need a real time operating system such as Mentor Graphics’ Nucleus or ENEA’s OSE. However, each chip core (CPU) can only run a single OS, and the modem needs an RTOS to power it, so how do you run Android?

Virtualisation to the rescue
The answer may lie in virtualisation of the modem chip. Using hypervisor technology from Open Kernel Labs or Virtual Logix, it is possible to run two operating systems on the same CPU. This would enable the RTOS and Android to co-exist on the same core, and open up single core EDGE chips to Android. Such an approach requires close cooperation from the RTOS, semiconductor and virtualisation companies, but could lead to a significant cost reduction for markets that do not need 3G capability.

To touchscreen or not to?
One of the largest cost factors in building an Android device is the touchscreen. An Android device could be built that eliminates the need for a touchscreen – but would it be a hit with consumers?

If an attractive feature phone can be produced with Android at the right price point, then does the consumer care what OS is under the hood? I would argue the vast majority of consumers don’t care. Such a device may even run a restricted number of applications with no access to an app store.

Would you use an Android phone with no touch screen and no QWERTY keyboard? Probably not, but then if you are reading the VisionMobile blog, I’m guessing you are not your average consumer?

The operator would appreciate having the same “standard” platform to deploy their operator packs on; the OEM would appreciate having the same platform to develop their ‘signature’ apps on, even if it this platform have fewer features. With a smaller, non touch screen devices, graphic processing requirements are reduced, and therefore processor requirement and cost is reduced.

However, there is an obvious side-effect here; will the applications developed for Android touchscreen devices also work on low-cost Android phones?. Would the buyers of the non-touch devices care or even know?

I would contend that the consumers that buy low-cost devices over the next 2-3 years won’t care about the apps. If the consumer wants a mid-low price touchscreen phone then there are a wide number of feature phones available (see Guy Agin’s excellent article on dispelling the smartphone craze).

The inevitability of low-cost Android
All in all, the push towards low cost Android is inevitable. There are simply too many companies in the value chain who are racing to differentiate with low-cost Android. But due to cost reasons, the form factor, functions, target segment, and use of the resulting devices is going to be significantly different from what we understand as an Android phone today.

Comments welcome as always,

Ben

[Ben Hookway works for Mentor Graphics in Business Development. He has founded, financed and sold companies in the mobile software sector over a 15 year career]

We ‘ve recently launched what is probably the most ambitious mobile developer research to date – benchmarking the developer experience across 400+ developers, all 8 major platforms (iPhone, Android, Symbian, Java ME, RIM, Windows Mobile, Flash Lite and mobile web) and the entire developer journey.

The project has been sponsored by Telefonica so that the research findings can be made freely available and widely publicized.

The most ambitious mobile developer research to date
Our research will take a closer look at developer needs and expectations by examining all aspects of the development life cycle, from design to delivery. More specifically, we’ll be looking at platform selection, platform features & application design, code development, tools &debugging, developer support, go-to-market and application marketing – as well as covering hot topics like open source and the future of network operators.

We ‘ve spent a long time in planning, peer reviewing and logistics of the research. Our methodology includes 200 one-on-one developer interviews over the phone in addition to an online survey and an in-depth hands-on platform benchmarks; we ‘ve designed this three-pronged methodology to combine quality, consistency and depth of analysis in what is the most ambitious mobile developer research to date.

Calling all developers
Are you a mobile developer? Register at visionmobile.com/developers to participate in our research via 30 minute one-on-one interviews.

We ‘re giving away a free MWC pass, a 500 EUR Amazon voucher and 20 wallcharts of the Mobile Industry Atlas which will be drawn out to participants. But do hurry, as the free MWC pass is only valid until Friday 5 February.

We have been excited in launching this project, as we believe this research will become a seminal point of reference for developer research, and provide new insights into every aspect of mobile application development. Plus – thanks to the generous sponsorship of Telefonica, the results will be freely available and widely disseminated in Q2 as part of the report Developer Economics 2010 and Beyond.

Cross-platform insights from our earlier survey
In view of our latest research, we’d like to share some noteworthy findings from our earlier developer research project.

Our research carried out during the first 8 months of 2008 included an online survey; we polled over 350 mobile developers across 60 countries and 5 platforms: S60, Android, Java, Windows and Linux.

We ‘ll share a small subset of 6 questions out of 40+ we polled during that survey – in what will probably be a small appetizer prior to the main course, i.e. our Developer Economics 2010 report coming in Q2 2010.

One of the most important questions we asked was also one of the most naive ones: What is your favourite mobile OS or platform?

Quite understandably, the S60 users and professionals went for S60 or Symbian in general, Android fans went for Android and so on. However, this is only half of the story.The Java group was the least ‘faithful’ to its platform, with only 62% of respondents citing Java as their favourite platform. The highest percentage of ‘faithful’ developers were those working with Linux, with 92%.  Linux was also the most popular platform, stealing away 3% of S60 and Java users and 7% of Android and Windows users. The next graph shows preferences for platforms, based on platform selected for survey. Note that all graphs are normalized to a total of 100 developers.

What is your favourite platform?

The next logical question after the ‘what’ is the ‘why’. Why is this your favourite OS or platform?

The answer on most people’s lips was ‘ease of use’, followed by ‘rich APIs’. ‘Faster to program with’ and ‘better dev tools’ were also popular answers, while financial and self-promotion reasons were almost non-existent.

How the world has changed in just under two years; post iPhone App Store, monetization and addressable market are much higher up in the agenda of mobile application developers.

Why do you prefer this platform or OS?

The most important factor in selecting an OS or platform was ‘feature-rich APIs’, while the least important was ‘responsive and accessible technical support’. It’s worth noting that Android developers seem to go for rich APIs, having the highest percentage, but complain about the lack of documentation (esp. in those early days of Android).

Most important factors in an OS or platform

In terms of the IDE, the vast majority of respondents believed theirs was lacking in terms of the UI editor for apps – which was particularly painful for Android and Java at that time. A well-integrated toolchain was another major pain point in the IDE for most developers.

What does the IDE lack?

It’s love or hate time! We’ll start with what developers love in their platforms. ‘Easy to use the APIs’ was the most popular answer, followed closely by ‘access to all APIs’. Linux and Android users were particularly impressed with access to all APIs, a sentiment not at all shared by their S60 colleagues. Windows users mostly went for ‘productivity due to the tools and environment’, while Java users preferred the ease of use of the APIs.

What do developers love about their platform?

What do developers hate about their platform? Well, most of them seemed peeved with the difficulties they faced in reaching the market; a reason that is mostly relevant to the way the market is set up (or was setup – in the pre- iPhone App Store era), rather than a fault in the platform. The main inherent fault most people found was the disparity between emulator and device performance, a view shared by all platform users except Android. Android users were also pleased with the production cost of the apps, as well as the support their platform offered. Unsurprisingly, less than half of the developers found something bad to say about their platform.

What do developers hate about their platform?

Of course the world of mobile development has gone through a sea of changes in the last two years. Apple introduced a single platform to target 50+ million handsets. GetJar, Apple and others paved the developer-to-consumer route to market. Google led the open source wave with the majority of the device platform published under a non-copyleft license. Adobe went back to square one introducing the Flash and Air runtimes to replace its fragmented Flash Lite installed base. And Palm left a thriving Palm OS developer community die a slow death. Mobile application development has gone through a roller-coaster history, with even more twists and turns behind the next corner.

So – stay tuned. The Developer Economics 2010 will tread new ground in understanding mobile developers, across platforms, regions and across the entire developer journey – and thanks to Telefonica’s sponsorship – we ‘ll be publishing the insights from the research far and wide.

Join in or spread the word!

- Matos

The Smartphone Craze
The other day I was reading some of the usual hype-induced reports on the Smartphone revolution. Wanting to put things into perspective I pulled out some old Smartphone forecasts from 2004-2005 by the likes of IDC, Informa and Ovum.

In those pre-historic days the main Smartphone contenders were Symbian and Windows. Blackberry was still an insignificant niche, and touch screen devices were still clunky stylus based UIQ phones and iPAQs. Yet surprisingly, the average Smartphone share of shipments that was forecast for 2010 was …about 30%. So even without the Apple & Google revolution fanning the flames, many analysts believed in the mass migration to Smartphones.

Reality check: by looking at the numbers for the first three quarters of 2009, it appears that last year there have shipped no more than 170-180 million devices considered to be Open OS Smartphones. Indeed Symbian, Windows, iPhone, Blackberry, Android, WebOS, LiMO and Maemo taken all together still only constitute about 15-17% of shipments. This percentage is in fact much lower than the 2009 Smartphone share predicted a few years ago by many research companies.

Why is this interesting?  It shows that hype can cause people to overlook the simple facts.  Despite the hype, Smartphone penetration seems to be following a gradual path which will eventually, in the long run, see Smartphones dominate shipments, revenues and installed base, but Smartphones are far from being an overnight revolution. In this light, mobile operators and software providers planning device platform strategies need to look at the opportunities going forward in a balanced, realistic way and not base it on hype.

Reports of death of the mid-range may have been a bit too early…
The analysis de-jour is that OEMs that relied on mid-range proprietary platforms and did not have a high-end Smartphone/Open OS offering suffered badly.  “Collapse of the mid range feature phone market” they claim.  Sony Ericsson and Motorola are given as the prime examples of that collapse, both having significantly lower shipments in 2008 and 2009 and both banking on Android to lift them back up. Yet the interesting data is that the two OEMs that gained the most market share at the expense of Sony Ericsson and Motorola and grew their revenues and profits in 2008-2009 were Samsung and LG, who together make up about 30% of the market- around 330M handsets shipped in 2009.

What’s both interesting and counter-intuitive is that these two Korean vendors achieved this phenomenal performance in the face of a recession with virtually no reliance on Smartphone platforms. A Telecoms Korea article estimated that in 2009 Samsung and LG have jointly shipped about 10 Million Open OS handsets, including their newly launched Android phones. That is only 10 million out of 330M (a paltry 3%!). It comes in stark contrast to the hyped picture that emerges from the Smartphone speak.  According to same article, 2010 will see almost tripling of Samsung and LG’s Smartphone shipments to about 25 million. Assuming Samsung and LG will maintain or increase their volumes in 2010, this growth, while impressive, is still very far from Smartphone domination. Unless Sony-Ericsson and Motorola achieve miracles with Android, the Google OS will not yet conquer the market in 2010. How can this seemingly counter-intuitive phenomenon be explained?

Touch Screen Phone Does NOT equal Smartphone
Despite the supposedly obvious linkage some seem to make between Smartphone /Open OS and touch screens, the reality is quite different. When Apple’s iPhone was introduced in 2007, rivals all rushed to come up with iPhone killers. The major benchmark set by the iPhone was not the Open OS and 3^rd party applications – the App Store did not open until mid 2008. Rather it was the slickness of the UI, the finger based multi-touch, and the browsing experience.

LG and Samsung were the quickest OEMs to respond, and promptly chose implement the slick UIs and touch screens on their so called “proprietary” handset platforms, not on Open OS platforms such as Symbian or Windows Mobile. Starting with a big marketing campaign for the LG Prada, a myriad of curiously named models appeared in quick succession, like LG’s Arena, Renoir, Cookie, Viewty, Chocolate and Samsung’s Tocco, Pixon, Jet, Behold, Star, Corby and Solstice, among countless others. Both Samsung and LG invested heavily in cross-platform touch screen UI layers -TouchWiz and S-Class respectively.

A rough count of LG and Samsung’s currently shipping GSM/UMTS models shows over 70% of their touch screen phone models are not Smartphones. Samsung and LG have correctly identified the market demand for slick UI, touch screens and Web browsing, and have created the mass market affordable touch phone segment. Samsung’s Tocco is the prime example: a 5 Megapixel, HSDPA phone, which has sold over 9 million units. Samsung and LG’s relatively stable ASPs (Average Selling Price) which are significantly higher than Nokia’s, show that their product mix has not gravitated towards the ultra low cost markets but rather the share gains were as a result of great success of the “mass-market touch” strategy in developed markets such as Western Europe and the US.

Even at the high-end flagship model segment, both Korean OEMs heavily marketed the proprietary models over their very few Smartphones. The Samsung Jet S8000’s key marketing theme was “Smarter than a Smartphone”. Head-to-head comparisons show Jet outperforming competing Samsung offerings like the Windows based Omnia. Similarly LG’s BL40 New Chocolate is presented as its ultimate multimedia phone. With 800Mhz processors, capacitive touch screens and 5 to 12 megapixel cameras, hardware requirements pose no limitations for the proprietary flagships. LG and Samsung are clearly continuing to invest in the proprietary platforms and in cross-platform UI Frameworks, as Samsung’s integration of the Dolphin browser into its SHP (Samsung Handset Platform) shows.

Meanwhile, with the recently unveiled Bada platform (or UI layer) it’s become clear that Samsung is not out to create yet another Smartphone/ Open OS platform but rather enhance its proprietary SHP platform.  If Samsung and LG’s proprietary platforms continue to improve, generate sales and build market share, it is difficult to see them vanish anytime soon.

Are “dumb-phones” really becoming extinct?
Clearly some RTOS phone platforms have fallen by the wayside, and it is certain that over the long term, older Operating Systems are bound to be marginalized or end their lives. But those feature phone platforms that have currently survived will still have huge markets to be sold into in the next few years. The key contenders are the major OEM’s internal platforms:  Nokia’s Series 40, LG’s platform (called WISE) and Samsung SHP/Bada.

There is also one platform that is licensed to multiple OEMs: Qualcomm’s Brew Mobile Platform. Qualcomm’s Brew MP is quietly gaining ground in many markets that have growth potential, especially China’s new 3G markets (and India to follow). Moreover, traditional BREW supporting CDMA operators such as Verizon Wireless, KDDI and Sprint have committed to Brew Mobile Platform going forward.  HTC, traditionally associated with Windows and Android, has recently launched HTC Smart, a Brew MP based phone, to compete in the mass-market touch screen phone segment.  I believe Brew MP’s new positioning as an open, free and Qualcomm-unattached offering has increased its appeal even for GSM/UMTS operators to utilize Brew MP as a basis for operator own-branded mid-range platforms. AT&T’s recent announcement of a major commitment to use Brew MP for a range of mass market handsets is the latest proof of this development

Nokia Series 40 (and whatever is left of Series 30) still accounts for over 80% of Nokia’s shipment volumes- this amounts to at least 320 Million phones in 2009. It still covers a vast range, from ultra-low cost to mid-high end. While Nokia will no doubt increase the proportion of Symbian and Maemo over time, it is still investing in the Series 40 platform into 2010- even adding touch screen capability and if the market returns to growth in 2010, Series 40 shipments could even increase.

Redrawing the platform map based on customer ownership
I believe that the platform definition lines are now being redrawn, and will not follow the traditional Smartphone vs. RTOS dumb phone view. The clear definition of what constitutes a Smartphone is blurring fast.

First, the view of the Smartphone as a device uniquely capable of installing full-fledged native applications is challenged by the following paradox: that LiMo and WebOS are considered “Open OS” Smartphones even though they do not (yet or ever) allow native Linux applications to be deployed. At the same time, Brew Mobile Platform, which has a native SDK and allows native application installations, is considered a feature phone platform. The appearance of Bada will surely obscure this definition further.

Second, I have also shown that high specification hardware, multi-tasking and touch screens are also not the exclusive domain of Smartphones.  Third, the emergence of new cross-platform rich application environments such as Web runtime widgets, can enable Widget app stores on any supporting device, Smart or “dumb”.

I believe the picture that emerges is a platforms landscape mapped by control of the end-to-end proposition. This map is bounded at its edges by two types of propositions (not including the low-end):

Type 1:  the vertically integrated, high-end consumer branded device-and-service platforms of the Apple/Google/RIM /Palm type, where the platform owner or OEM is in control of UX and services (with App Stores and software updates at the epicenter). The operator can aspire to serve as a “smart-pipe” at best, as most services are delivered and managed by the platform and brand owner.

Type 2:  a mid-range proposition involving platforms which are white labeled by design like LiMo, Brew MP and OMS (a customized version of Android). These are platforms that cater to tier-1 operators, where they can define and manage customized UX and services, including Web, multimedia content, data sync, device and software management.  This is classically typified by INQ and Three’s BREW based phones, Vodafone’s LiMo-based 360, and AT&T’s plans outlined earlier. The emphasis here is on services, where consumer access to an application store (for widgets, Java or native apps) is a service but is not as critical to the overall proposition.

In between these two there are hybrids, notably tier-1 OEMs like Nokia and Samsung, who are attempting to build their own end-to-end service propositions with their device platforms (Symbian & Maemo for Nokia, Bada for Samsung) while still collaborating with their traditional operator customers on co-branded services and customized device propositions. Google’s Android partnership with key operators such T-Mobile also falls into this hybrid category.

The bets are spreading
As of late 2009, the only companies who are shipping true Open OS Smartphones in mass volumes are Nokia (Symbian), RIM (Blackberry), Apple (iPhone) and HTC (Windows Mobile, now Android). This will no doubt start to change over the course of time as Android shipments start to ramp up and the rest of the platforms realize their growth potential, but it is still not an overnight revolution.

Looking forward, this thesis shows that the market will be much more diverse than the simplistic notion that everyone either wants an App Store capable iPhone or Droid, or alternatively, an ultra-low cost phone to make phone calls. There is many more commercial dynamics at play, making up a complex platform map which is driven by customer ownership.

In 2009 the number of available device software platforms effectively grew, creating more fragmentation in the industry, not less. There are clearly mid-range segments and geographical markets with varying needs, which can be addressed with various software platforms, not necessarily in the traditional view of Smartphones vs. RTOS “dumb phones”. Simply betting on one or two platforms to rule the industry is not a sensible plan.

- Guy

[Guy Agin has been working in the mobile industry since the days of the Palm Pilot. He has product managed diverse mobile solutions for many companies in the mobile industry. He is currently heading strategy and strategic business development activities at Red Bend Software. He can be reached at guy [dot] agin /a/t  redbend.com]

2009 was the year of the app store wannabes.  Following the remarkable success of the Apple App Store, OEMs, mobile platform vendors, mobile operators, and traditional aggregators either created new app stores or repositioned their existing offerings as app stores.  There are now between 24 to 32 app stores depending on who is counting (see Distimo’s app store report and the WIP App Store Wiki for reference), and more stores are surely to follow.  However, key questions remain about how the app store landscape will emerge after the current period of hysteria subsides and the dust settles.

- Are we going to see many app stores on each handset?
- Will app malls emerge to host multiple app stores within?
- Will operator stores gain critical mass?

Andreas Constantinou wrote an excellent article that defines the app store building blocks and predicts a “dime-a-dozen” app store future.  I will build on this post, but will offer an alternative view of how the landscape will evolve.

It’s a Winner-Take-All Contest
If we were to extrapolate the current trend, we could expect a future where each handset will host many app stores.   An LG Android device on the Orange network would have the LG App Store, the Android Market, and the Orange App Shop.  The Verizon version would have the V CAST store in place of the Orange App Shop.  On top of this, you could add the Getjar multiplatform store and several specialty stores for say, games, health, and productivity apps to name just a few.  Can you imagine the mess this would create for the user experience?  Which app store do I launch? Which apps do I find on which store? Are apps duplicated on multiple stores?  Are the prices the same across stores or do I need to shop around?  Are the versions of the apps consistent across stores?

Fortunately when the dust settles consolidation will occur and one app store will command nearly all the market share on each device.  Sure there may be a couple “also rans” with a small share, but as history has shown us, these two-sided platform battles tend to result in winner-take-all contests (see definition of two-sided markets here).   We’ve seen similar battles already play out on the web with Amazon winning e-commerce, eBay winning auctions, and Google winning search.

Why winner-take-all markets happen has already been well documented.  Economists Frank and Cook documented this phenomenon with their Winner Take All Society book and Rich Skrenta wrote a nice post on the battle for search supremacy that led to Google’s reign. In two-sided markets there are two sets of users (consumers and developers in the case of app stores) and once both sets of users pick a winner, it is very hard for competitors to gain much share. To cut to the chase, the app store battle in mobile will also result in a winner-take-all contest for the following reasons:

• Low switching costs.  Given how easy it is for a consumer to switch from one app store to another, any advantage of one store, even if small, will cause more consumers to visit the better store. Why buy at the world’s second best store when the best store is only a click away?  This initial advantage could be in terms of time-to-market, quality or quantity of applications, user experience, or pricing.
• The word spreads.  Word of mouth, accelerated by social networks, will cause a snowball effect attracting more and more users to the store with the initial advantage.
• Developers vote.  As more consumers visit the winning store, more and more developers will prioritize that store for their applications offering that store an even greater advantage.
• Economies of scale.  As one store gets significantly larger, it will enjoy greater economies of scale and therefore a cost advantage over competing stores.

A positive feedback loop cements the ultimate winner.  The more consumers that visit one store, the more developers will create apps for that store, and the greater the economies of scale the winner will enjoy. This battle will play out on a device by device basis with the Apple App Store already the winner on Apple devices (to be accurate, there was no real battle in this case as Apple’s policy does not allow competing stores).  A battle will play out for say RIM devices on the Verizon network (V CAST versus App World), another one for Android devices on the Orange network, etc.  So while we are initially headed for a “dime-a-dozen” app store landscape as Andreas predicted, over time we will see significant consolidation.  And as the number handset platforms themselves consolidate (surely to happen, but this is outside the scope of this post), we’ll have even fewer stores.

The Two Exceptions that Prove the Rule

• Adult Content.  Niche stores will exist to satisfy needs that, by policy, are not met by the winning store.  Adult content stores such as MiKandi are a clear example.  Another example is Cydia, an app store for jail broken iPhones.
• Enterprise App Stores.  App stores designed for IT organizations to manage application distribution and provisioning within an enterprise have unique requirements that the consumer stores will not meet.  In addition, the low switching costs described above do not apply to enterprise stores.  Examples of Enterprise stores include Mobile Iron and Ondeego.

Think Department Store, not App Mall
Rather than app malls that host multiple stores, the winning app stores will be like department stores with applications organized by category.  Games, health, productivity, entertainment, etc. will be departments within a big store, not specialty stores within a mall.

For clarification I’m defining a “mall” from the point of view of the customer experience, as in the real world.  Customers walk into a mall and discover multiple branded stores, each with its own checkout process.  An example of an app mall is the now defunct Nokia Download. You may recall that Nokia Download (formerly called Nokia Content Discoverer) touted its “advanced shopping mall experience” when it was announced, hosting multiple stores such as Handango and Jamster (called aggregators at the time).

The mall concept does not work because it hurts the user experience for no extra value:  users end up clicking on unknown store brands adding an extra layer of user interface that gets in the way of the app discovery process.  Moreover, if each store in the mall requires users to enter a form of payment the user experience suffers even more.  Although there are more reasons why Nokia Download failed, the user experience of its mall concept was an important factor and as a result Nokia is now busy copying the more successful department store model with the Ovi Store.

This does not mean that there won’t be aggregators behind the scenes.  In fact, the ingestion process could include a publisher like Symbian Horizon or a syndication service like Getjar’s.  However from a user experience point of view, it’s a department store, not a mall.  Amazon is a good model for the winning app stores.  There may be many sellers behind the scenes, but it looks much more like a department store than a mall.  There is one prominent store brand with many departments, a single shopping cart, and a single checkout process.

Will operator stores gain critical mass?
Once upon a time operators had a virtual monopoly for the distribution of mobile applications (depending on the region). Apple changed all that, of course, and the tables are now turned resulting in a developer exodus away from operators (for more on this see My Number One Wish for Operators).   To regain developer mindshare many operators are launching their own “app store style” stores, implementing many of the lessons learned from Apple, including the 70% rev share, developer set pricing, and click-through agreements.  Verizon announced V CAST, Orange has App Shop, O2 is testing Litmus, AT&T has App Center, Vodafone has 360, etc.  But will these operator stores succeed?  I think it depends on the type of device (feature phone vs. smartphone) and on the size of the operator.

Operators lose the app store battle on smartphones, but win on feature phones
Operators have a natural disadvantage to attract developers compared to the smartphone platforms because they are more fragmented.  There are dozens of operators compared to only a handful of smartphone platforms.  Developers are better off working with the small number of smartphone platforms to get worldwide distribution across all operators instead of targeting each operator separately (each with their own SDK, certification requirements, business terms, and fragmented device line-up).  To compensate for this disadvantage operators would have to add much more value with their own stores.  Carrier billing and access to network APIs are areas where operators can add value, but these capabilities are likely to also become available on the native handset stores.  Operators can also differentiate by tapping into their huge advertising budgets to market their apps, enticing developers whose apps are difficult to discover given the unlimited shelf space in the stores.

Another option for operators is to increase store switching costs for their customers by not preloading competing stores on devices they sell.  This would require customers who want to shop elsewhere to find, download, and install other stores on their own.   Verizon Wireless is a good example of an operator trying this strategy.  Verizon does not preload RIM’s App World in favor of its own (upcoming) V CAST store.  However, as operator influence over smartphone providers continues to erode (a trend surely to be accelerated as devices such as Google’s Nexus One are sold directly to consumers), this option will go away forcing operators to truly differentiate their stores, or else. We’ll see how this plays out, but operators will likely lose the app store battle on smartphones unless they find a way to significantly differentiate and do it fast before the native stores consolidate their advantage.

The battle for app stores on feature phones is quite different for two reasons:

• This category of devices is much more fragmented and operators can gain an advantage by providing a common platform across them to attract developers. This approach neutralizes the fragmentation advantage that OEMs enjoy in the smartphone category, as discussed above, and is precisely the strategy that AT&T just announced at CES: AT&T will launch Qualcomm’s BREW Mobile Platform across its mid-tier devices to attract developers for its AppCenter store
• Operators enjoy much more influence over feature phone specs and content than on smartphones.  This will enable many operators to exclusively preload their own stores on these devices essentially blocking alternative stores.

Although the smartphone category is where the growth is, there is still a very large and mostly underserved market at the high end of the feature phone category.  These devices have large displays and often full QWERTY keyboards (touch or physical), representing a large untapped market for mobile applications that operators can serve.

However only tier 1 operators are large enough to attract developers to their own stores.  Even tier 1 operators are better off getting together to form a much larger market to attract developers as we have seen with the JIL alliance or the collaboration between AT&T, Orange and America Móvil (just announced at CES).  Smaller operators will have to rely on third party stores that can aggregate applications and syndicate them across multiple operators.  A good example of an operator pursuing this strategy in North America is Sprint.  Sprint has announced that it will remove its own application offerings from its smartphone line-up and will partner with an external aggregator to launch a white label store for its feature phone line-up.  Other operators will have to follow the same approach.

What are your thoughts?  Do you buy into the winner-take-all argument?  Are we going to see app malls or department stores?  What role do you believe operator stores will play?

- Francisco

[Francisco Kattan has worked in the mobile industry for 10 years and has deep expertise across the entire ecosystem, including devices, operators, developers, and content providers.  Francisco has held leadership roles at Edify, Openwave, Adobe, and currently Alcatel Lucent where he is Senior Director, Developer Ecosystem.  You can follow Francisco via his blog, on Twitter and he can be reached at franciscok [/at/] stanfordalumni.org. This post reflects the author’s personal opinion and not necessarily that of his employer.]

* As an aside, the launch of the iPhone changed the ecosystem so dramatically that we need a new way to measure time in mobile.  Any discussion about how the mobile ecosystem works must specify Ai or Bi (After or Before the iPhone) in the same way historians use BC and AD to date events.

After many months in the making, we ‘ve released our annual Mobile Megatrends 2010. It’s our third and biggest Megatrends research we ‘ve published to date featuring 64 juicy slides with detailed analysis on the future of mobile.

So what are the overarching trends of mobile in 2010? We ‘ve covered 8 core themes:

1. Vertical integration: one way street or quick detour? We present a novel way of studying the evolution of the mobile industry, from 1985 to 2010+ and the trend-setting milestones for handset OEMs and network operators. We use this tool to demonstrate how handset OEMs have evolved twice as fast as network operators and how vertical integration (as practiced by Apple, RIM, Nokia et al) is a 20-year cyclic trend, not a panacea.

2. The evolution of revenue models. We re-introduce Value Quadrants, our novel tool for mapping the evolution of revenue models, and present how revenue flows are changing in 2010 and beyond. Here we discuss upstream monetisation, productisation of systemware and completely new revenue models that are emerging such as per inventory, per reach and per activation.

3. App Stores: the long-tail future. We compare the top-5 App Stores across their key figures (installed base, downloads, applications, revenues and revenue share). More importantly, we go behind the scenes to uncover the five key ingredients of the app store recipe, and why a succesful recipe must fuse ingredients from very opposite ends of the value chain. We also review the evolution of app stores throughout 2000-2012 and place predictions on five key tenets that will determine the future of app stores; abundance, diversity, co-existence, low barriers and the dominance of retailing.

4. Web platforms: why the future of software development is still elusive. In this trend we review the evolution of the mobile web, from WAP to widgets and WebKit. We compare and contrast 3rd parties (developers) vs 2nd parties (handset OEMs and their partners) to demonstrate how the need and 2nd and 3rd parties are diametrically opposite. We then show how web platforms address very few OEM needs and therefore why the web is simply a means to an end to attracting developers, but little else.

5. In Open is the New Closed: how companies are using open source to further own agendas we update our seminal research on licenses vs governance models. We then poke under Symbian Foundation, Google Android and LiMo Foundation to show how each of these initiatives is using open source as part of a capitalist governance, rather than a socialist one that the open source moniker implies.

6. Recommendations everywhere: raising the bar for mobile services offers a state-of-the-market update on one of the most underhyped sectors in mobile: recommendation (a.k.a personalisation) solutions. The analysis goes into the many types of recommendation solutions, key suppliers for each and reviews 8 key vendors in recommendation technology: Xiam, Changing Worlds, Ericsson, Loomia, Pontis, July Systems, Olista and Choice Stream. The trend analysis concludes with an outlook on recommendation systems, including the next challenges in academic research and commercial evolution, and why we expect M&As to ensue in this sector.

7. In OEM Monetisation: products, services or distribution we present a ‘reverse engineering’ of the mobile value stack to uncover where are the remaining unique assets handset OEMs can tap into. We then present two promising strategies for OEM monetisation; inventory distribution and integrated device+UI design.

8. In the final trend Operator futures: bit-pipes or supermarkets? we discuss 7 strategies with which operators can change course away from a bit-pipe future. Based on a top-down analysis of the remaining ‘value pockets’ in the mobile value stack we present our theses on unique brand deliverables, matchmaking between consumers+brands, customer and service analytics, reach-beyond-VISA, in-the-hands experience, idle-screen monetisation and other smart-pipe strategies.

We ‘ve already presented earlier versions of our Mobile Megatrends as part of closed customer events and conferences, including as part of Rutberg’s invitation-only Wireless Influencers event in San Diego. The next presentation of the Mobile Megatrends 2010 is taking place in early February in Lund, Sweden courtesy of Cybercom. To request a on-site presentation of Mobile Megatrends please contact us.

Comments welcome as always,

- Andreas
follow me twitter: @andreascon