platform

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.

Google's acquisition of Motorola is clearly designed to be an acquisition of Intellectual Property rather than an entry of Google into the phone business, but the impact on the business will be felt in many ways.

It is surely going to send some Android vendors scrambling. The situation is not without precedent however. The history of governance and ownership of Symbian shows how the licensing of platforms by licensor competitors leads to unintended consequences.

Symbian was formed to be governed in a way very similar to the original Android via the Open Handset Alliance. The company was owned by a consortium of phone vendors.[1] The shares were not equally distributed however with Nokia holding a larger share (though not a majority).

Although nominally involved in decision making, the smaller shareholders never felt entirely comfortable with the arrangement and over time some sold their shares and left the group even though they continued to license the OS.

Eventually Nokia ended up acquiring the company outright and open sourced the code. However, by then the product was obsolete and the only licensee was Nokia itself.

The lesson (and warning) was that a licensor that is also a licensee makes other licensees uncomfortable. The supplier is also a competitor. This is classic channel conflict and never ends well.

Open or not, with or without equity, these arrangements are always unworkable.

So Google's promise that

"This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences."

seems naive at best.

--

Notes:

1. Before its outright purchase by Nokia in December 2008, Symbian Ltd. was owned by Nokia (56.3%), Ericsson (15.6%), Sony Ericsson (13.1%), Matsushita (10.5%), and Samsung (4.5%). The company's founder shareholders were Psion, Nokia, Ericsson, Panasonic/ Matsushita and Motorola. Motorola sold its stake in the company to Psion and Nokia in September 2003. Psion's stake was bought by Nokia, Matsushita, Siemens AG and Sony Ericsson in July 2004.

ComScore's latest survey data shows the following net user gains in the US smartphone installed base:

In summary, the key data points for June:

• 2.8 million new smartphone users in three month period ending June (vs three month period ending May)
• Of the total 78.5 million users, about one million switched platforms
• RIM had a net loss of about 600k users
• WebOS lost about 195k users
• "Other" (mostly Symbian) lost 273k users
• Windows Mobile/Phone reversed two months of decline and added 100k users
• iPhone added 452k users (considerably below its approximately 1 million/month run rate for last four months)
• Android gained 2.2 million users, consistent with average over 7 months.
• Platform "churn" was at 1.36%, about average over three months

Installed platform shares for the US market are shown in the following chart

Platform Installed base vs. non-smart devices is shown below:

The penetration of smartphones slowed down in June (though that seems to be seasonal). The following chart shows weekly smartphone adds (or feature phone losses as total user base has held constant.)

Averaging the adoption rate over six months gives a "tipping point" forecast (50% penetration) of October 1st, 2012. That still means that 155 million American mobile phone users don't use smartphones.

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.

At the end of last year I was saying that the smartphone boom was a tide that lifted all boats. That is no longer the case.

 

But the big story is that there has been a clear non-seasonal counter-cyclical decline in Nokia and RIM's smartphone performance. RIM's steady rise has come to an abrupt halt. Nokia's decline has accelerate precipitously. So much so that Samsung and Apple have overtaken Nokia and RIM and it looks like HTC will overtake RIM within one quarter and perhaps Nokia as well.

The fortunes of vendors is now clearly tied to the fortunes of their platform choices. Android has a spotty record with Samsung[1] and HTC having accelerated growth with Android, Motorola and Sony Ericsson have not rallied to a similar degree (though they did remain operational). But it's at least very clear that BlackBerry OS and Symbian are now a burden to their owners.

The fact that not all vendors benefit from a boom indicates that the early, happy days are over. People are noticing that there is a difference between smartphones and are not buying any and all. An era of competition will follow. I hinted that such a shift would happen when a "tipping point" was forecast and that point has been reached in several mature markets.

The consequences are that weaker platforms and vendors will come under increasing pressure.

---

Notes:

1. Samsung decided to stop reporting the number of smartphones they sell. They also refuse to report the break-down between different platforms--they sell Windows Phone, Bada and Android devices. The figure I gave to Samsung is 19.9 million units, higher than 19.0 and 19.3 million from other analysts.

As Verizon has reported iPhone sales for one and a half quarters, it's time to try to discern the impact on the product. There were several hypotheses floating around prior to the "big bang" of Verizon.

Some assumed that there would be a large migration away from AT&T and that AT&T iPhone sales would slump. Others that there would be no Verizon iPhones volumes at all because there were so many Android users already converted. There were also suggestions that the iPhone would explode in growth with two major operators carrying it.

What really happened?

The first chart shows historic AT&T activation with Verizon activations added. It also shows sales to "none of the above", namely non-US sales of iPhones[1].

AT&T iPhone activations show no significant impact from Verizon and Verizon itself shows a modest start to sales[2]. What did not happen is an exodus from AT&T. We also did not see a rejection of the iPhone by Verizon customers long exposed to anti-iPhone Droid advertising. We also did not see a considerable impact of Verizon on growth.

Verizon did contribute (4.5 million Verizon iPhone users is nothing to sneeze at)  but the contribution was to a degree that was nowhere near a big bang.

That was because the real big bang was from the rest of the world. The same data in the first chart is shown below as a stacked area chart and a share chart. Had Verizon not come on board the business would still have grown year-on-year over 100% (and sequentially).

The US activations have been decreasing as a percent of total iPhones sold. Before Verizon came online, the US share was decreasing (from an average of 45% share in 2008 to 33% in 2010). After Verizon, the US continues to slide to an average of 30% share (two quarters).

 After waiting nearly four years, American observers of the iPhone could perhaps be excused for their obsession on the impact of expirated AT&T exclusivity. But the real impact is that by the time it came, it was moot.

It would be a mistake to look upon Q1 and Q2 and say that the explosive growth was due to Verizon or the end of US exclusivity.

The global market is far greater than the US and the iPhone business has simply grown to reflect that.

 

 

---

Notes

1. Non-US sales are total iPhones sold minus activations in the US. There is the possibility that some of the unactivated phones were activated on T-Mobile or that there is some delay between purchase, channel inventory and activation, but the time frame shown should smooth out any of the noise.
2. What we don't know is what was the impact of iPhone sales start on Verizon's other smartphone platforms. Unfortunately, Verizon does not report overall smartphone sales/activations so we can't conclude directly that iPhone has slowed other platforms on Verizon. Some other data (NPD, Changewave, ComScore) do indicate some slowing in Android growth in the US but we have no definitive data to prove it.

In the last two weeks we received two more data points which allow an update to the "race to a billion" platform growth trajectories. Android reached 130 million active users and iOS reached 200 million.

The updated picture looks like this:

Note again that this is a log scale graph. Every major horizontal gridline is an order of magnitude (10x) larger than the one below. It's a busy graph. The linear version follows:

For the detail-minded, it makes for some interesting comparisons, but I want to create a more compelling visualization. One where each platform can be judged for potential and impact at a glance.

To that end I came up with something I call the platform "adoption frontier" view. Based loosely on the Pareto efficiency concept the chart is reduced to show the latest known figure of (users,time) and overlay concentric arcs centered on 10 million/10 years and radii of unit years (x-axis).

Note that the time axis is reversed from the chart above. This was to allow the best performers to be shown at the upper-right of the chart.

The way to read this is as follows:

• Each platform is represented by a point which shows its currently known peak in users and time to reach that number of users.[1]
• The arcs (frontiers) represent possible performance classes.
• The lowest frontier spans "four years to reach 10 million" to "10 years to reach 200 million". The highest frontier spans "<1 year to reach 10 million users" to "10 years to reach 1 billion users". Each frontier can be read in a similar way.
• The main assumption is that a platform can reach more users but it takes time. Better performance is when a platform moves toward a frontier further from the origin.[2]
• I chose the limits of the chart specifically: 10 years is roughly the limit of most platforms[3] in the current cycle time of technology disruption; One billion users is an upper bound set by Windows.

One thing you can read from the chart is to say that "from a growth point of view, Blackberry is weaker than any of the other platforms." Sitting below the lowest frontier with fewer users than Android which has been in the market for less than a third of the time it seems to be less impressive. It is, however, in a similar band of growth as Xbox 360, which, by some measures, is a success story. So the performance standard is relative.

One can also see the rough equivalence in growth between iPod and Symbian, both having crossed the second frontier. But iOS and Android are in a different league. They sit alone beyond the fourth frontier. The fifth frontier is the "billion user in a decade" potential and it seems within reach for both.

What this view also offers is an answer to the question of competitiveness. Although platforms can co-exist and don't necessarily overlap, the question of becoming overwhelmed with "good enough" by widespread low end alternatives looms for the specialized platforms. For example, game consoles look very vulnerable because they simply do not have the potential to cross high frontiers and orders of magnitude of casual gamers (with potential TV connected devices) might orphan the consoles.

I've also included some platforms that have peaked and faded (AOL and i-Mode and Netscape) as a warning. The frontiers illustrate of how hard it is to reach the upper limits of growth. Each level is exponentially more difficult than the last and achieving it with paying customers is a remarkable story of value creation.

[UPDATE]

I add below the frontier chart with a linear vertical axis. Note that the frontier lines are not equivalent to the frontier arcs in terms of coverage.

---

Note:

1. The data I have is for platforms where users have to pay something to participate. I exclude platforms where users are the only merchandise being sold (i.e. social networks or email provision).
2. I only include the initial ramps not upgrades. Windows is anomalous because it is so old. During its first decade (1985 to 1995) it reached over 17 million users but placing it on this chart does not do it justice given the growth occurred in its second decade.
3. See Symbian and Windows Mobile. However again, Windows which is nearly 30 years old, is an exception.

 

Steve Ballmer stated and Andy Lees confirmed that Microsoft views iPad and other tablets as "just PCs". From a market measurement point of view Canalys agrees. IDC and Gartner don't, calling the new devices "media tablets."

Before deciding whether tablets belong with PCs in market metrics, it would be interesting to look at what the data shows. When seen as a combined market, the focus should be on platforms. The following chart shows the four main PC+tablet platform volumes since late 2008 [1].

The second chart shows the same data as share of total market:

This comparison allows for some fresh observations:

1. Excluding iPads, Apple is very close to being 5th largest global PC vendor. Global share likely to be above 5%. Including iPads, Apple would be 2nd.
2. Platform year-on-year growth was Windows: +1.3%, OS X: +26%, iOS: +170%. Android growth cannot yet be measured since Android tablets have not been on the market for more than 1 year.
3. In Q2 2011 one million more Windows PCs were sold than in Q2 2010. In same time, 903k more OS X PCs and 5.5 million more iPads.
4. Excluding tablets, nearly 50% of the global PC growth was due to the Mac. Including iPad, Apple was responsible for ~70% of the growth in the PC market in Q2.

The picture that emerges is that while Windows continues to be dominant with 84% of units sold in the last quarter, the growth belongs to tablets which captured about 90% of it. If Windows remains marginal on tablets, the "PC market" will likely tip away from Microsoft in two years (depending on how quickly Apple can build iPads.)

Microsoft is making the commitment to move Windows to a tablet form factor but they are doing it while retaining the user interaction model of a desktop. This may or may not work but they are also conceding that a separate experience is also necessary. By rejecting the notion that a mobile OS alone can do the job, they are essentially building a "hybrid" tablet/laptop/desktop product which may be challenging to use but preserve their presence in the form factor.

Whether Microsoft succeeds or not will depend on whether the new form factor is disruptive in more than user experience. In other words whether this is just a "new PC" or a "post-PC". The argument comes down to business model changes. For example the new model comes with different cycle time of product development (deep, integrated, yearly changes), different ecosystem (apps), different cost structures (high R&D in hardware), vast scale (device economics, components, ramps), and potentially new distribution (operators in the channel mix.)

Summed up, the real challenge for Microsoft is whether they can keep their business model (selling OS licenses to hardware vendors) as PCs become more device-like. Not only is iOS setting the benchmark for performance but Android is potentially ready to take share if the market turns slightly more modular. Microsoft's differentiation looks to be primarily its legacy of PC software.

It may also seem that much remains to be discovered in this market but I think the main bets have already been made. The PC market as we know it is in the end game.

---

Notes:

1. I used Gartner data for overall world-wide PC market and merged it with Mac and iPad data from Apple. Android data is estimated.

The following chart shows the net gains in users for the major mobile platforms in the US. The data is derived from comScore's MobiLens report.

The raw numbers for the last period (ending May) are:

1. Android gained 2.1 million users
2. iPhone gained 1.0 million users
3. WebOS/PalmOS lost 96k users
4. Blackberry lost 202k users
5. "Other" lost about 95k users

The "churn" or percent of smartphone users who switched platforms is 1.22%/month  of the overall users (assuming users to left one platform moved to another rather than to non-smart devices.)

The share of the platforms and the overall composition of users is shown in the following two charts:

As usual, caution should be exercised when looking at share (top chart) outside the context of overall growth. The second chart may be more illustrative of what is happening. The light blue area on top is the smartphone non-consuming population.

Android has been a tremendous accelerant of smartphone adoption while iOS has grown as well but share has not grown significantly. iPhone growth has kept up with market growth. This cannot be said for the other platforms which have been "squeezed" between these two entrants.

So although the main competition is with non-consuming users and smartphones are winning in general, the loss of users by some of the incumbents is unsettling.

Microsoft lost just over 2 million users in the US last year while RIM lost a net of 1.5 million. Palm lost about half a million. Contrast this with 8.5 million iPhone additions and 23 million new Android users.

In particular, Windows Mobile/Phone is down to 5.8 million users (down from 18m in December 2009). With a loss of half a million per month, and share down to 4.5%, a lot is riding on the new platform.

I've argued that the post-PC era will be a multi-platform era. Although it may seem that the situation in the US is rapidly moving toward a duopoly, it may not end up that way. Note how much non-consumption still exists.

Note the time frame of the charts is only 18 months. The rapidity with which platforms gain ground could allow for continuing platform churn.

Windows Phone Marketplace has reached 25,000 apps. That's an impressive figure given that so few devices have actually been sold. Compared with Android which is activating half a million devices per day, Windows Phone seems like a rounding error. According to Gartner, 3.6 million smartphones using a Microsoft mobile OS were sold in the first quarter of 2011, of which 1.6 million were Windows Phone 7. That implies a daily activation rate of 17,500 per day or one WP device for every 28 Android devices.

And yet the number of apps on Windows Phone is more than 10% of the number of Android apps and Android Apps are about half of iPhone apps. As far as Windows Phone is concerned, apps are being added faster than users. Why is this?

If we take the point of view that mobile platforms behave like the computing platforms of years gone by (i.e. Windows vs. Mac) then this is inexplicable. Developers should not be bothering with a distant third. This would be like betting on the Amiga in the era of Windows.

But we're not in the PC era any more. That era had very high software development costs. It had very difficult software distribution channels (retail box sales typically) and very few categories of software with high price points. It was also dominated by institutional buyers which did not give quarter to small vendors. It was also a time when there were orders of magnitude fewer users and even fewer buyers.

The post-PC era is characterized by an explosion of ideas and application of new talent to software. It's an era of immediate gratification and painless, one click distribution. App production is a cottage industry not something entrusted to only a few experts or those who can raise venture capital. It allows the small to distribute widely and get a shot at stardom. It has been (thankfully) avoided by enterprise buyers. The result is an explosion of apps: well over half a million new apps have been built in three years on three platforms that did not exist three years ago.

So the very reasons which are driving developers to spread their bets across all and any new platforms should indicate the potential for new platforms and the sustainability of small platforms. The thesis that one dominant platform wins the mobile "war" is naive. The post-PC era will be a multi-platform era. Developers already understand this. Platform vendors know this. It's time to unlearn the lessons of the PC era.