Bada

On Mar 18, 2013, Rafael Barbosa Barifouse - Redacao Epoca - Editora Globo asked (and I answered):

Q: Why is Samsung creating Tizen?

A: I believe they are collaborating on Tizen development because they want an alternative to Android and because Bada was not good enough to meet that goal. Tizen's roots include contributions from Intel, Nokia and several Japanese companies so it's not Samsung's OS per se. Historically it was the "open" alternative operating system for embedded and mobile systems. See https://github.com/kumadasu/tizen-history/blob/master/tizen-history.pdf for a historic perspective.

In some ways Tizen seems to be a blend of several pieces of code including proprietary Samsung user interfaces. Samsung is presumably interested in having a unique, differentiated experience. This is something every device maker seeks. Put another way, if they did not seek this then it's unlikely that they would be profitable which would also imply that they would not invest in marketing and development of products. As Samsung invests both in marketing and development it can be concluded that they seek to offer a unique value proposition and, in today's market, that means a unique experience.

Does it make sense to create a new mobile OS when it has had so much success with Android?

Samsung would argue that the success it's had is not due to Android but to its products. Arguably they are right because if Android were the valuable component in a phone then buyers would buy the absolute cheapest device that runs Android regardless of brand. That is not the case. People still seek out a particular brand of phone because of the promise it offers. Consumers have been buying more Galaxies than no-name Android phones.

Why is Samsung the most successful company between the Android devices makers?

In my opinion it's due to three reasons:

1. Distribution. Success in the phone business depends in having a relationship with a large number of operators. Samsung had these relationships prior to becoming a smartphone vendor [because it sold all other kinds of phones]. Few alternative Android vendors have the level of distribution Samsung has. For comparison Apple has less than half the distribution level of Samsung and most other vendors have less than Apple.
2. Marketing and promotion. Samsung Electronics spent nearly $12 billion in 2012 on marketing expenses of which $4 billion (est.) was on advertising. Few Android vendors (or any other company) has the resources to match this level of marketing. For comparison, Apple's 2012 advertising spending was one quarter of Samsung's.
3. Supply chain. Samsung can supply the market in large quantities. This is partly due to having their own semiconductor production facilities. Those facilities were in a large part built using Apple contract revenues over the years they supplied iPhone, iPad and iPod components. No Android competitors (except for LG perhaps) had either the capacity to produce components or the signal well in advance to enter the market in volume as Samsung did by being an iPhone supplier.

Tizen was being treated as an OS for low and mid level devices, but recently Samsung said that it will launch a high-end device with Tizen on Q3, an area where it's very successful with Android. What has changed? What does this announcement mean?

Planning for these product launches is done a few years prior to launch. I believe alternatives to the Android line (i.e. Galaxy) have been planned for a long time. Note that Samsung also has a line of Windows Phones and historically has supported Bada, Windows Mobile, Symbian, PalmOS and LiMo smartphone platforms. Samsung's involvement with Android is only about three years old, and arguably only enjoyed two years of prominent growth. That's less than one product launch cycle and far less than a platform or OS development cycle.

I believe the company has a long term perspective and that includes a time span beyond the likely lifetime of Android [Note that platforms do have finite lives]. Keep in mind that phones last less than two years. If users are not loyal to a platform then they will very quickly move on. The "stickyness" of a platform depends on media or software consumption by the user. That level of consumption is not particularly high for most Android users. The same phenomenon happened with Symbian and BlackBerry and Windows Mobile users. Hundreds of millions switched or will switch out of those platforms. This happens far less with iOS, Mac OS X and Windows because of the significant investments users make in the ecosystems above the OS.

Is Google dependent on Samsung's sucess with Android? Or Samsung is more dependent on Android since its the most popular mobile OS nowadays?

Google is not dependent on Samsung because it's not dependent on Android. Samsung is not dependent on Google because Samsung is not dependent on Android. Android is valuable in theory but in practice its value is hard to identify. Historically it was planned as a defense against the hegemony of Windows, BlackBerry and iOS. In that respect it has succeeded. But playing defense is not enough to win a game. For Google to truly succeed in mobile it needs to define a better business model.

So far its profitability from mobile is very weak and has not shown up in the bottom line. Furthermore, it's probable that Google has 'control' over only about 40% of Android devices in use. Control here means a guarantee that users will use those devices for the benefit of Google, and, more importantly, not for the benefit of its competitors.

You can also think of it this way: If they "divorced" there would be minimal to no impact to their fortunes in the foreseeable future. Buyers of Samsung phones will still buy Samsung phones because they will look and feel very similar and Google services will still be available through browsers or apps (e.g. Google maps on iOS). Conversely, users of Google services will continue to use them because they will be available on Samsung devices, no matter what OS is running. The services Google offers are independent of Android and are cross-platform. They will make sure they are available on all major platforms (as they were before and during Android). Google is far more loyal to Search and Maps and Gmail and YouTube than they are to Android.

Do you think Google is going to merge Android with Chrome OS?

Google's chairman said they would so I assume they will.

If so, how this could make an impact on Samsung?

It depends on how the new OS would enforce licensing terms. If the result would be a restriction on Samsung services like S Pen, AdHub, Samsung Wallet, SmartTV, ChatON etc. then Samsung might reject the OS and either fork Android or move to Tizen more broadly.

The global mobile OS market shares for Q4 shows a continuing (but diminished) leading share.

At the end of last year Android's unit share reached 51% which is down from about 57% during the third quarter. iOS reached 23%, followed by Symbian at 12%, RIM at 9%, Bada at 2.4%, Windows Phone at 1.6% and Other at 1%.

When seen on a year/year basis Android gained 18 points of share in Q4 while Symbian lost 18 points. iOS gained 6 points of share and RIM lost 6 points. Bada gained 2.5 points and Windows lost 1.5 points.

This symmetry can also be observed in another set of data. Published in The Guardian Kantar Worldpanel ComTech data shows the OS share changes for January on a year/year basis for a select set of countries.

Android share gains do seem to be mirrored by Symbian share losses on a country-level.

This should be most interesting to Nokia and Microsoft as both have a lot riding on Windows Phone replacing Symbian sales. If there should be a recovery in the fortunes of these companies, it would seem that their strategies should focus primarily on stemming and then reversing the losses to Android.

Microsoft's strategy of increasing the cost structure for Android through IP licensing is certainly part of this picture but it's a slow process to turn that disincentive for Android into a large incentive for Windows Phone.

Indeed, the speed with which Android handsets can be developed seems to be a key value of that operating system and one for which Microsoft does not have a good answer.  Nokia is now one year into its commitment to the Microsoft platform and it has a very limited portfolio to show for it (and limited sales as well.) As a result, Nokia's Symbian business evaporated very rapidly. More rapidly than the company anticipated.

The dilemma for other vendors may well be how long will it take for them to develop a replacement for their Android portfolio in Windows Phone.

The opportunity cost of this switch is subtle and insidious but may be the root of why we don't see a stampede toward Microsoft. Conversely, Android contract-free, implement-at-will availability may be its greatest selling point.

 

Samsung has, over the years, shipped phones using almost every operating system it could get a hold of. That includes Symbian, Windows Mobile, Windows Phone, LiMo, Android, PalmOS and OPhone.

As far as I know, today its portfolio includes Android, Windows Phone and its own Bada OS. The relaxed attitude to platform exclusivity at Samsung is in stark contrast with almost all other competitors who either for the sake of encouraging their own platforms or minimizing development costs maintained either one or two smartphone platforms.

Samsung justified their polyplatform strategy a few years ago by saying that different platforms are popular in different regions and as they did not want to be excluded from any market, they felt that being agnostic is the best policy.

The idea that platforms are not universal, but the result of provincial preferences is interesting. It's a concession that "politics" plays a large part in mobile markets. However, for all the volume growth the strategy has produced, the strategy has not paid off in terms of higher margins or pricing power as the following chart shows.

 So perhaps polyplatform thinking is coming to an end.

Exhibit A is Bada itself. The idea that Samsung would build its own OS came as a surprise to anyone following their history. Why did Samsung buy a book when there's a library in town?

Exhibit B is the repeated statements of Samsung's Chairman saying that the company should invest in software. Software!

Exhibit C is the statement today that Samsung intends to spend some of its $9.3 billion R&D budget on Software.

The money is expected to be used to strengthen the company technology prowess in such areas as mobile phones, semiconductors, displays and electronics products. Funds will also be allocated to software development.

Samsung investing in software development does indicate that perhaps the company does see value in that component and would prefer not to be dependent on suppliers for it.

In theory, as the market power of inputs (supplier power) increases due to concentration and forward integration it makes sense to backward integrate.

As a supplier itself, however, Samsung has to ask itself if its component customers are thinking the same thing.

The violence with which new platforms have displaced incumbent mobile vendor fortunes continues to surprise.

• Nokia's Symbian platform has gone from 47% share to 16% in three years
• Microsoft's phone platforms have gone from 12% to 1%
• Other platforms have gone from 21% to zero
• Although far less dramatic, RIM's decline from 17% to 12%  is causing acute pain and anxiety

This while entrants have grown share in spectacular fashion:

• Android from zero to 48% (A two year period)
• iOS from 2% to 19%
• Bada from zero to 4% (two quarters only)

 

The picture of platform share over time looks like this:

 

The platform volume growth is shown in the following graph:

Shocking

Or is it?

The surprising thing is that it should not be surprising. When the iPhone re-defined the basis of competition (at the beginning of the time frame of these charts) it unleashed forces which are still spinning the industry into a new configuration.

In that context, Android is a natural consequence. As iPhone created a threat, the response from all other vendors (other than Nokia and RIM) was to seek something that would sustain their business. Android was salvation.

It enabled the pursuit of better margins and hence better returns. So much so that Android offers the escape up-market they have always sought. It enables vendors to abandon the profit-free feature phones to low-end entrants like ZTE and Huawei.

LG, Samsung, Motorola and Sony Ericsson all took the bait. They are racing as quickly as possible to turn their feature phone portfolios into Android portfolios. This is certainly something that Google also wants to see happen and has been planning all along.

However one of the consequences of the modular (aka "open") approach is that the low end disruptors gobbling up low-end share are also motivated to move into the Android business as soon as it comes within reach.  The only reliably predictable consequence of Android will be the postponement of displacement of the existing brands by the low-end entrants.

Is this fate unavoidable for all brands?

Clearly some vendors see the trap. For all its apparent failings, Nokia saw this outcome and chose to attempt a "Hail Mary Pass" with Microsoft. The strategic point being that because they no longer had faith in their ability to execute on an independent platform, they would pick a platform that gave them at least some control or leverage. There are serious risks and problems with this approach--something which has been covered here already--but the bet being made is a clear rejection of the slippery Android slope.

RIM is trying to resist with QNX which is a similar approach but timing may also be the undoing of this strategy. HP's approach with WebOS and Samsung's Bada are also hedges to avoid this fate.

And what about Apple?

Apple is always skating in a different direction. iOS needs to be seen as not so much a phone platform but a computing platform. Given what we know, iOS was always conceived as the future of computing. Voice, after all, is just an app on iOS. So my expectation is that Apple's iOS will continue its attack on the mobile computing market, skimming (or carving as the case may be) profits from the phone business to sustain its ultimate target of reclaiming the computing universe.

By this thinking iOS lives only by improving more rapidly than anything else in dimensions that redefine the basis of performance. In other words, doing more of what the iPhone did in the first place to set off this disruption.

Nearly all the data on smartphone shipments is now available for the second quarter 2011. Some fragments are still not public, including ZTE and Huawei (and any others) shipments. We also have estimates for the various platforms including an estimate for Windows Phone and Bada (though not for WebOS).

This allows the following chart:

Using the traditional color scheme which separates "integrated" from "modular" vendors, the chart shows overall volume growth and how the volumes are split among vendors.

The market grew at about 73% y/y and 50% compounded over three years and 9% sequentially. The y/y growth rates for individual vendors were:

1. Samsung 525%
2. Apple 142%
3. HTC 124%
4. Motorola 63%
5. "other" 29%
6. RIM 18%
7. Nokia -30%

In terms of unit share, the pie charts below show the before and after (three year span):

And the stacked area below shows every quarter over a four year period.

The story is largely unchanged since last quarter except perhaps in the rapidity or deterioration in Nokia's performance and Samsung's partial exploitation of that decline.

It should be noted that not all of Samsung's volumes are licensed platforms. An increasing share of Samsung smartphone volumes is Bada, an internally developed OS.

In the charts above I arranged the bars to place Nokia and RIM in the middle to show their double envelopment. A pincer movement is only an analogy but perhaps it's evocative of what's happening.

The number of Bada phones shipped last quarter is not public, however some assumptions can be made that lead to plausible estimates.

First, we know that Samsung shipped about 3.2 million smartphones in Q2 2010 and that total included Bada and Android (and perhaps even some Windows Mobile).

Second, we know that there were about 19.9 million smartphones in Q2 2011.

Third, Canalys published an estimate that Bada grew by 355% y/y.

So if we knew how many Bada phones shipped in Q2 2010 we could derive the current Bada shipments and also realize how many of the nearly 20 million smartphones from Samsung were actually Android.

The clue is in an estimate from December last year that suggested that there would about 5 million Bada shipments in 2010. Coming close to the end of the year, and from Samsung directly, we can be pretty sure the figure is accurate.

Taking this 5 million and spreading it over four quarters could give us enough of an estimate. That makes 1.25 million quarterly units. If we assume some seasonality or increase toward the end of the year, a Q2 figure of 1 million might be more accurate.

Therefore, applying the 355% growth rate yields a Q2 2011 estimate of 4.5 million Bada shipments and hence about 15.4 million Android devices from Samsung last quarter.

Considering the increasing importance of Bada to Samsung, it should be clear that Android is not the only source of growth for the company and its transition of feature phones to Bada as well as Android is a key strategic driver for differentiation vis-a-vis low end entrants.

Samsung's mobile marketing lead for the country, Sitthichoke Nopchinabutr, also provided a surprise and hinted that the company might turn on Google and focus primarily on Windows Phone. About 15 to 20 phones based on Android, Bada and Windows Phone would ship in 2011, but the majority of them would use the Microsoft OS. For every 50 Windows devices, 24 would be Android models and just five would use the in-house Bada OS.

via HTC, Samsung see Windows Phone, Android dominating phones | Electronista.

Shocking!