software

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.

HP's sudden departure from a business model that has sustained the company since inception is symptomatic of the passing of an era. Yesterday HP announced that it would exit the PC and tablet computer business, focusing on higher-margin "strategic priorities of cloud, solutions and software with an emphasis on enterprise, commercial and government markets." In other words, HP is fleeing upmarket, away from a core that it will abandon to device makers.

HP management conceded that the disruptive impact of the iPad forced their hand but that hand was already quite weak from a decade of over-serving the market. The last decade offered plenty of opportunities for incumbent PC companies to adjust to the realities of mobility. However only one computer maker made the transition.

Why is that?

Consider how HP and Apple faced the changes in the PC market almost exactly a decade ago.

• On September 3, 2001, HP announced that they would acquire Compaq.
• On October 23, 2001, Apple announced the iPod.

The rest, as they say, is history.

But what would any reasonable person have done? The PC industry was no longer young but still thriving, why not consolidate? Consolidation is a natural and well-reasoned practice for maturing industries. You get rid of over-capacity, you consolidate overhead, "leverage synergies" and boost margins.

And it's not like they were ignoring innovation. Compaq had a growing line of PDAs, so there were plenty of diversification opportunities. Microsoft was offering Pocket PC and the Phone edition was on the roadmap. HP was clearly watching mobility carefully.

Contrast that with Apple's predicament. Which aspiring manager would want to deal with the disaster that was Apple at the time? Apple was struggling with a declining Mac business and had just re-booted it with OS X but it seemed a quixotic effort. Moving to music players seemed desperate (and late). Margins were low, commodity vendors were lining up, record labels offered resistance, they did not have any IP or any DRM and nothing but Mac users as target audience.

As it turns out, the path of sustaining and the path of disruption diverged that moment in time a decade ago. Companies like HTC, Apple and RIM were embryonic in their device businesses vs. Goliaths like Microsoft, HP and Dell. But they grew, at first slowly, but at all times profitably.

By the time their success was worth noticing, in 2004, HP and Dell decided to dabble in devices. But all their efforts were half-hearted. They did not crave profits but growth and share. HP's PDAs and phones never received management attention. How do I know? Because they relied on off-the-shelf components for everything including software. It indicated that the value to be offered was in "leveraging" (there's that word again) their brand and distribution. The value of HP was not to build something great--something that required blood, sweat and tears.

The result was a set of mediocre experiences while the (now incumbent) Apple was iterating rapidly into new directions. By the time the future was self-evident, it was too late to build foundations. HP did the right thing to acquire Palm, but they did it far too late. In 2010 the game was over.

How cruel.

But that's the nature of unforeseeable growth: you cannot foresee what will happen and plans never work out. Data and planning don't help. The lesson is that you need to plan for that which cannot be planned. When you are at your peak you must assume failure is imminent and when you are at the trough you must assume success is inevitable.

All failures of strategy are rooted in the assumption that outcomes are predictable.

This is why I expect Apple is now working on shaping the post-iPhone world.

--

Update: This article has also been published in the Harvard Business Review blog: HP's Decade-Long Departure - Horace Dediu - Harvard Business Review

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.

My thanks to Robert van Apeldoorn, journalist for Trends Tendances Magazine, for asking good questions. My responses are reproduced below. The article (in French) is titled "Nokia a trop écouté les réseaux télécoms" and can be found in the June 23rd edition of the magazine along with more details in the article "Comment Nokia peut-il renaître?".

-About your post “Does the phone market forgive failure”, that puts forward the idea that all mobile device vendors experiencing losses never really recover… It seems that this possible “rule” is more severe than in the computer industry. If Digital Equipement, Compaq, WordPerfect did fail, IBM and, yes, Apple, did survive failure and rebound strongly. Do you think that there is a difference between the industries? What makes the failures more lethal in the mobile device market ?

The observation is unique to the mobile phone market and even there it's only an observation not a rule. It could be that Nokia will be the first mobile phone company that will recover from severe crisis, but history shows it to be very unlikely. I try to shed some light on the reasons why it's unlikely and what makes the mobile phone market so unforgiving. I think much of the problem rests with the fact that mobile phones are sold indirectly, through intermediaries who are amplifying both success and failure. A company like Apple was able to recover in the computer industry because it launched new products like iPod which could be sold directly to consumers. It had to convince the consumer and only the consumer. Having to convince a distributor, retailer, value added reseller, operator and consumer would be much more difficult. These intermediaries are "institutional" buyers who are risk averse and have low tolerance for untested ideas. Institutional buyers need to think about dealing with other people's money not just their own so they are doing the right thing from their point of view.

Nokia needs to persuade first operators, then distributors and then consumers that its new products are great (even though maybe the old ones were not so great.) That's tough. Apple works in the other direction. It creates consumer demand then "sells" that demand to the intermediaries as needed.

These intermediaries (which Steve Jobs famously called "orifices" to the market) amplify the success and failure of a company. For a long time after a product may lose favor with consumers, it will still be sold out of momentum of the channel. But it works the other way as well. If you're out of the channel, getting in is much harder even if the product may have favor with consumers. This is Microsoft's problem with Windows Phone. Surveys show that it's well liked by users, but because Microsoft relies on a long chain of intermediaries, it's still very hard to get started. Microsoft (and Nokia) rely on momentum to carry them once they get some traction and they plan to spend a lot of money ($ billions) to ensure they get some traction.

-You are absolutely not optimistic at all about the Microsoft partnership (see “in memoriam” post). What could be the best solution? To enhance Symbian platform? Go for Android?  To create a new market with a new kind of device (cf book “How new ideas can win fast”)? Or to go back in the tire business ;-) ?

I only observe and record data and then try to have a theory of why it happens that way. The empirical data shows that Microsoft has been very unsuccessful with mobile. Their partners seem to all have failed and the list is long. So the question is why. Is it just bad luck? Is there something wrong with management? Is it that perhaps there is a failure in strategy or business architecture?  All these are possible hypotheses but I believe the problem is that Microsoft has chosen not to integrate products and to rely on intermediaries at a time when that strategy leads to uncompetitive products. One can understand why they went with this strategy: They believe the scale of the market is so large that they cannot address it like they did with Xbox (building their own complete solution). However, that also means that they are likely to be uncompetitive during the time when integrated products/ecosystems are still not good enough and can iterate more quickly to capture the market. This was true for the iPod where Microsoft tried to license technology to device makers. It was true during the time of Windows Mobile when Microsoft's OS could not compete with either Blackberry or Symbian and it may still be true today with iPad which redefined what a computer could be.

-What and when, precisely, Nokia did fail to understand how to be remain the market leader and innovator?

I think the answer goes beyond the failures in execution or software development. Being late or sloppy with Symbian evolution is a symptom not a cause of the failure. What Nokia failed to understand is that software and data-oriented products would be built and sold and valued differently than voice-oriented products. Nokia listened very carefully to its best customers, the operators. Operators saw data as a sustaining improvement to their core business and steered Nokia into building "voice-plus" products. Every technology that came out of the laboratories was used to enhance the phone *as a terminal* in a network. Nokia never framed the product as a computer using the network as an accessory the way modern smartphones are valued (or if they did as with Maemo, it was a half-hearted effort). Users today are glued to apps and local media storage and see network access as a necessary inconvenience. The network is only valued in terms of being available.

The re-framing of the device from being a terminal to being the center of user's focus is the "disruption" which is sweeping aside all the incumbents in the phone space. They all did what was expected of the best managers: they listened very closely to their best customers. That also leads to blindness when the industry itself is being ripped apart by disruptive forces.

-In many aspects, Nokia developed many innovations (email on the phone, music store, smartphone with applications, tv on the phone,..). I remember visiting a Nokia exhibition four or five years ago, in Nice, with a broad and incredible new services range that I almost never see on the Belgian market. Many of the innovations were related (dependant) to a deal with telcos, as network device vendor. Blackberry (RIM) or Apple were more successful. Is it because they had nothing to sell as network device vendors ?

This is answered by the previous answer as well. All of Nokia's services were designed to help operators improve their business. Operators were the best customers and they ensured Nokia would sell large volumes. But consumers did not see it that way. When a competitor came with an alternative, consumers defected en masse. By then it was too late to change the strategy. It takes years. Nokia still perseveres with this operator-first strategy. Elop continues to say they will do what operators need first. The first thing he did when on the job was visit every major operator. The decision on Windows Phone was based on whether operators saw it as a viable third alternative to the iOS/Android duopoly. Strategy is a matter of priorities not capabilities.

-How is the Nokia strategic problem perceived in Finland ?

The problem is very deeply felt in Finnish society. Nokia was a source of pride for the country and also a large employer both directly and indirectly. I think the impact is felt more psychologically than financially. There was a sense of betrayal when Symbian was publicly "terminated". Many people criticize present and past management, but I think that anger is misplaced. The failure of a company rarely comes from the failure of character or intelligence. It's usually a failure of being too rational, too reliant on best practices. What Finns need is a dose of independence in thought and a re-assertion of their willingness to take risks.

The Finnish character is one of independence and perseverance in face of adversity. If Nokia loses its independence then it will need to deal with a lot more adversity. I believe however that innovation will continue. Case in point: Rovio, the maker of Angry Birds is a Finnish company.

Any student of organizational theory must struggle with the question of how to assign weight to the influence of the leadership of a company. In the case of Apple, the question is:

Is Jobs is the embodiment of Apple or is Apple already Jobsian, imbued with his ethos?

John Gruber summed up (start at 8:00 min) the "Apple is Jobsian" argument by saying that Apple is Steve Jobs' greatest creation and that he has been working on crafting the company as much as he has been crafting products. The result being that it's well designed for sustainable longevity.

The arguments for "Jobs is Apple" are mostly rooted in anecdotes of a supreme leader that is indispensable to every decision and detail. There are also ample examples from history of companies who foundered after the departure of founders (Apple itself is notably cited.)

But beside armchair quarterbacking, what evidence is there that Apple is being engineered to operate independent of its founder? Unfortunately there is almost no organizational analysis for Apple. Unlike many of its contemporaries, there aren't org charts or tell-all accounts on life in Cupertino. There are no anonymous "mini-aapl" blogs or tales from the disgruntled.

For this reason, a recent quote about the mysterious "Apple University" in Fortune caught my eye.

First a brief review of what was known.

Apple University was first mentioned in 2008 when Joel Podolny was hired from running Yale Management School to join Apple in creating this new "University". I remember at the time thinking what such a thing might be. To leave the top job in one of the top business schools to join Apple must require some powerful incentives. I envisioned Apple entering into a far more ambitious iTunes project where they could be offering degree programs or teaching resources through the familiar store front.

But nothing was heard about Apple University again. Until yesterday.

According to the article in Fortune and some additional details from another source, Joel Podolny has been building an understanding of how Apple is run. He's then been asked to codify this understanding into a curriculum that can be taught to Apple employees.

The idea that Apple is trying to capture its institutional processes and knowledge is very compelling. Few companies have self-knowledge. Fewer still try to codify it and teach it to new generations of leaders (Disney, McDonalds and Toyota have in-house training programs but they are mostly aimed at new hires).

For those who don't bother, the consequences are a more rapid descent into disruption. I've experienced the consequences of the failure to remember decision processes. Knowledge about decisions disappears once the decision maker moves on, leaving a new generation to figure out the causes of success (and failure) all over again.

The evidence of the forgetting of history abounds at companies like Sony and Microsoft which seem to be behaving exactly opposite to how they once did. Sony, once a serial disruptor, turned into a sustainer. Microsoft who pioneered software as a business, cannot find new business models for software.

Apple's decisions and outcomes are the stuff of legend. They famously act asymmetrically to what is "conventional wisdom". Wisdom imparted supposedly through business schools but systematically contradicted by Apple's principles:

• Accountability without control
• Lack of "P&L responsibility" for top management
• Saying no to "better things"
• Building products before markets are identified
• Functional vs. hierarchical or divisional organzation
• A disregard for polite consensus

So if this type of decision process is not codified, how is it going to persevere when convention dictates otherwise?

If the article is correct and there is an effort under way to codify and teach new generations "the Apple way" then the case for Apple being Jobsian grows a lot stronger.

While a lot of the credit for Apple's success is rightfully assigned to the iOS franchises, the OS X business has more than quadrupled in five years. This has happened without drastic price fluctuations. Neither holds for the overall PC industry which has seen both volume and sales decline while prices have eroded along with profitability. On top of that, growth has nearly evaporated.

Even with this success, as a percent of total value created, the Mac accounts for a mere 13% of Apple's profit. Including software as part of the OS X franchise implies that OS X is enabling about 20% of Apple's profits.

iOS, on the other hand, is accounting for more than 75%. These two platforms combined amount to 96% of Apple's profits (up from 50% four years ago).

That's $9.8 billion from integrated platform-based devices. One can be very confident that this profit would be negligible without the software differentiation only Apple can offer.

So $10 billion is a lot of profit to obtain from a business enabled by operating system platform software. How can we get a handle on this size? How big is this? We could compare this with another operating system business: Microsoft Windows.

Microsoft's Windows and Windows Live Division obtained sales of $4.445 billion in the last quarter with an operating income of $2.764 billion.

So although Windows earned about twice what the Mac earned[1], iOS and OS X together enable 3.5 times the profits of Windows.

The end of an era is the end of growth in one dominant business model. The PC era was epitomized by the concentration of profits in a dominant operating system vendor. That growth has slowed if not ended. The post-PC era is being kicked off by a new business model where profits are being concentrated in a hardware+software+service integrator.

--

1. Or you could read this as: The Mac generates half the profits of Windows while iOS devices generate 2.3x Windows profits.

The following interview was conducted by Bruno Ferrari a writer about technology for EPOCA, the weekly magazine of Organizações GLOBO, the largest Brazilian media company on March 30 2011. The article (published in Portuguese here) is an edited subset of the following exchange.

Q: In your analyses, you mention tablets as part of a new era, the “Post PC era”. Why do you think the PCs will be replaced by tablets?

This is not quite correct. Post PC does not mean the end of the microcomputer. The way to think about it is this: The stone age did not end because we stopped using stones. Same with the iron age and the industrial era. The era of jet travel did not end automobile or even ship travel (though that changed to recreation rather than transportation for passengers.) Each phase of technology does not fully replace its predecessor. It offers a new set of solutions and perhaps a slightly different way of solving old problems. We'll still have PCs but we will use a new type of computer, an even more personal computer. The world still uses the microcomputer's technological ancestors.

In terms of what new jobs will we hire the tablets to solve, they will vary greatly from what we used PCs for. Just like we used microcomputers for different things than we used time-shared minicomputers and mainframe computers. I expect social interaction, media consumption and entertainment will move from a PC to a tablet. New uses will emerge from the vast experiment that is the app phenomenon.

Q: What are the new ways to interact with machines? With gestures? How will this change the market?

Each major disruption of computing came from a new generation of input and/or output methods. Terminals (vs. punch cards) enabled minicomputers. The GUI enabled the rise of the microcomputer and touch is enabling the rise of the tablet. Perhaps this era will last decades perhaps only years, but there will be new input and output methods available. The world's research laboratories are filled with ideas from projection screens (from high brightness LEDs) to motion sensing (as implemented partly by Kinect) and even novel voice control methods. I believe that each major innovation will create a new wave of growth and, if coupled with a new business model, a new set of companies and platforms.

Q: What are the main differences between PC and Post PC era?

The main difference will be in the context in which the product will be used. Tablets and smartphones allow "computing" to be done in previously non-consuming contexts: while standing, while in the active company of others, while commuting or while lying back and relaxing. It will also allow more individual use. Like the transistor radio allowed teenagers to listen to rock-and-roll out of hearing range of their parents who had control over the family stereo, a truly personal computer will allow people to "escape" into a world of more intimate consumption and communication.

Q: Do you think physical keyboards and mouse will be extinct?

Even physical keyboards have been evolving dramatically. If you look back to the earliest IBM PC keyboards, they were mechanically complex and had a rich feel. Modern laptop keyboards are flimsy things with barely any feedback. Early PC keyboards were patterned after the needs of professional typists (aka secretaries). Current keyboards are designed around space constraints. Same with mice. They went from two to three to one to no buttons. With laptops we ended up with track balls,  little knobs in the middle of the keyboard or with trackpads. Users adjusted over time.

What changed with tablets is the removal of an on-screen pointer. The pointer was there because the mouse/touchpad was one layer of abstraction for controlling what was on screen. Without a pointer you have direct manipulation. I'm sure many people who never used a mouse would find the direct method more intuitive and in a generation people will wonder how we put up with mice. Conversely, those who are used to a mouse will find it uncomfortable at first. Remember that in the 80s many keyboard experts found mice something that slowed them down.

So I believe that people will adjust to a world without mouse pointers. I suspect children born today will grow up without ever using a mouse (or a phone with a wire permanently attached to the bottom).

Q:  Apple has more than 90% of tablet market worldwide. Do you think Apple will be the leader of technology market in the next few years?

The challenge for Apple is that they cannot serve the whole world. They can only grow so fast. On one hand we have their inability to meet demand and on the other we have alternative products which can. Market leadership may not be sustainable just because the market is so big and no single company can supply it. I do believe that Apple is not sitting on its hands however. Their culture promotes pushing forward.

Q: At smartphone market, do you believe on a risk of a new duopoly, Apple-Google? Some analysis says that they’ll control the channel sales of software, content and hardware. The conclusion is companies like RIM, Nokia and HP (Palm) will not be able to keep up.

Analysts differ in their opinions. IDC just released a forecast that shows Microsoft growing beyond iOS in four years. I don't try to make this type of prediction. At least not to a high degree of precision. I do believe that there will be more than two platforms. This is because the market is so large and so diverse and there are so many ways to reach customers (through operators, through retail stores, through online).

Q: Can we compare the beginning of the tablets with PCs? Apple developed the interface and made ​​the first computers nice and easy to use. But Windows has allowed hardware manufacturers to invade the market, popularizing it. This will be repeated with Android? Or with other systems?

Innovations are always copied. Even when protected by all sorts of laws or patents. What makes a company successful with innovation long term is to always keep innovating. Often coming up with the next big thing means damaging the old thing. That's hard to do for many companies so they don't do it and somebody else does. This is why great companies end up as formerly-great companies. As I pointed out above in the discussion about input methods, innovations are always bubbling up. As long as Apple takes these ideas and polishes them and brings them to market, they'll do all right.

Q; How about Microsoft? Do you think the company will lose the podium in Post PC era?

Microsoft already has lost its position as leader in personal technology. The end actually came in about 2000. Once Windows became "good enough" and did not crash so much, they have had a hard time finding something to improve. If you go back and watch every CES keynote that Microsoft presented since then it's been a litany of dead end ideas.

Every major innovation since 2000 has been in consumer technology and that's never been an attractive business for Microsoft (with the exception of XBox which was really aimed at Sony and Nintendo without the intention of creating a new market.) Microsoft struggles not because they lack talent (engineering or management) but rather because their business model is relatively rigid. They make money through software licensing. You can see how that's a hard thing to sell to consumers ("I'm buying what?") Consumers tend to pay Microsoft through the purchase of another product. If the market demands hardware/software integration (like in a phone or tablet) or making money by giving software away (like Google), they struggle. This business model rigidity is present in almost all companies, so Microsoft is not uniquely troubled.

Q: Most of the tablets will use mobile networks to connect to the internet. Do you think the world is ready with an infrastructure that supports this growth in access via mobile networks?

This is a good question because the growth of mobile broadband is a major enabler (or constraint) on growth. Fortunately, the roll-out of mobile broadband is fairly predictable and it looks good. There are some challenges for operators long term in paying for the infrastructure, but they don't lack for financing today and the business case for more infrastructure seems to be very attractive. It will take time and it won't be even globally, but the incentives are clearly there. A lot of value is being created with mobile computing and much of that value will end up paying for the bandwidth.

Q: How about the App Market. You posted recently a chart showing how fast developers are buying thickets for both Google and Apple developer events. You said that it is one signal of the Post PC Era. What will be the importance of apps on the next years. Do you think Apps market will be more important than hardware, content and OS market?

Developers are one more sign that something big is happening. It's not the only sign and may not be the cause of the change, but it's yet another signal. But apps are a phenomenon that will result in something bigger than we can imagine. The way to think about apps is as a new medium, similar to the emergence of radio, television, cinema and even books. The app is a new art form as well as something that provides functional value. We don't know whether the app phenomenon will be tied to one platform or will evolve to something like HTML5, a common standard. But the value of having an app for everything is plainly evident. The economics, creative energy and dynamism of apps cannot be overestimated. I will write more about this subject as I think it's one of the most important consequences of the post-PC era.

Q: What’s the destiny of the PC? Are they on their last years?

Again, it's not so much that PCs will disappear any more than mainframes or servers have disappeared. What is more likely is that they will be used for isolated, focused jobs. The "end of an era" is the end of growth, not the end of existence. The PC has arguably reached end of growth in most developed markets. There is still strong growth in emerging economies but even there, much of that growth will probably be replaced with smart devices growth.

Q: We had the Mainframe Era, the Terminal Era, the MiniPC Era, The PC Era and now we starting the PostPC Era. Do you imagine what Era we'll se after the tablets? When do you think is it going to happen?

I don't try to be a futurist who can see with clarity technological change. I try to see the patterns of markets through the motivation of companies. With that in mind, my answer will be that large companies will acquire promising new technologies from start-up companies and implement products with global distribution. To see the future you therefore need to look at what small companies are doing today. I note that there is a lot of innovation in new communication methods (social media) and new input methods around gestures and display technology. I am skeptical about the power of voice controls.

I'm most confident that there will be a re-definition of television, a "socialization" of almost all media. So I'll abstain from answering directly what happens after the Tablet Era. Perhaps something more personal and more of a companion than a tool.

Until the iPhone's arrival in 2007, upgrading the software on a mobile phone was a rare experience for users. So rare that effectively it was not done. Few people were bothered though since they did not see the product they used as a software product.

This was even true for Windows Mobile and Symbian which were licensed platforms. Microsoft tried several times to offer upgrade paths, but more often than not the device vendors did not push out updates or the process required to perform an upgrade made it the reserve of either those who were paid to do it or those who enjoyed the challenge.

In the era of the modern smartphone, upgrades are more common. Certainly with the iPhone the process is easy enough that opting out of an upgrade is more challenging than opting in. But it's still not as common with other platforms. Even with all the resources and experience behind them, Microsoft is still stumbling with Windows Phone upgrading.

UPDATE 1-Microsoft explains phone software update delay | Reuters

But is it really a matter of blundering or is there evidence of nominal partners working at cross-purposes?

Upgrading a mobile device is technically challenging. There are many things that can go wrong. Integration helps, but it is also possible for a modular solution to be implemented. There are harder things to coordinate.

However, things go wrong and as the linked article above shows, fingers get pointed. Device vendors who have no stake in a platform can easily interpretan upgraded OS as one fewer hardware upgrade. Platform vendor's lament that device guys want to proliferate unique versions and act with passive aggression. Device vendors see the software upgrade cycle as increased support and engineering costs with no upside. Consumers don't know whom to blame and often turn to the operators since that's who they pay every month.

The problem of upgrade failure is a symptom of a deeper dysfunction inherent in immature modular business architectures. It's not just that the brightest at Microsoft or Nokia or Google can't make an upgrade stick. It's that the upgrade is not universally beneficial to the value chain. To remedy this, licensors have to resort to contractual obligations to ensure upgrades, but enforcement is non-trivial and can lead to aggravated relationships.

Unless all licensees of a platform find compelling value in shouldering the burden of upgrades, they will continue to be really hard. This leads to increasing fragmentation and a corrosion of platform value for licensed platforms vis-à-vis their integrated alternatives.

HTC's market cap has just overtaken Nokia's. While market capitalization is a fickle thing, shifting with sentiment, this is still a remarkable feat. Nokia's market capitalization has almost halved in the space of a year while HTC has more than tripled from $10 billion to over $33 billion.

If you roll back to 2007 and the start of the modern era of smartphones, you can see how the two companies stocks traded places:

(source: Google finance)

The recession was hard on everybody but HTC soared during 2010 while Nokia never recovered. Markets reward unforeseen growth and typically that means above-market growth.

That's reflected in the following chart (admittedly units and not profits, but pricing and margins for both have remained relatively steady.)

As Nokia's growth lagged the market the stock was punished. As HTC's growth exceeded the market's growth, the stock was rewarded.

But there are a few more observations to make:

• HTC's smartphone business was under-performing the market for most of 2009. In fact, it was even in negative growth for three quarters.
• The surge in growth coincided with HTC adding Android to its portfolio and given no other changes, seems to be causal.
• Although not within the time range of the charts above, HTC had another period of rapid growth in the mid 2000s.

A year ago HTC was making excuses and apologizing. Today they are more valuable than the largest phone vendors. All thanks to Android.

But why no thanks to Microsoft?

HTC was the primary Windows Mobile vendor a few years ago. They claimed at one point to have shipped over 80% of all Windows Mobile devices. They were also the leader in the Pocket PC franchise as they were the ODM behind the iPaq brand from HP/Compaq. HTC would not exist today were it not for Microsoft.

The relationship is such that HTC is paying Microsoft for protection from (potential) Android IP infringements. HTC has also licensed Windows Phone though the relationship between Nokia and Microsoft must give them pause.

But that's the whole problem. Those who live by the sword shall die by it. HTC was a Microsoft dependent and now they're a Google dependent. As the basis of innovation shifted, HTC was agile enough to make the transition. Perhaps they can execute a portfolio switch yet again as their upstream suppliers change whims or business models.

But then again, as we saw with Windows Phone, perhaps not.

If HTC wants to control its destiny it needs to control its suppliers. Now that its power and brand have grown, it needs software because in their market software is self-determination.

When I began the series of posts on Google vs. Android I put forward some questions about the business logic of Google becoming an operating system supplier, especially as that role can be seen as being counter-productive to Google's strategy.

I noted three strategy costs associated with a zero priced systems software bundle.

1. A opportunity cost with other platform vendors, namely Apple who might retaliate against Google's core business.
2. Versions of the software being usurped and modified to provide distribution to Google's competitors.
3. Damage to Google's brand and positioning and negotiating power in relation with other members of their value chain.

More fundamentally, Google-as-systems-software is asymmetric to Google-as-cloud-software and contradicts the value proposition that Google enables value in the web not in accessing the web. Android appears to be a nod in the direction that systems software still matters.

In my numerous posts on the need for integrated development in the era of mobile computing, I also criticized any device vendor that chose to rely on a software stack from an external supplier as foolish. I claimed that they would end up creating uncompetitive products. I thus labeled Google's pursuit of them as ultimately futile.

More than a year has passed since I began this critique of Android. It seemed quixotic as Android volumes exploded and a mad rush to the platform spun it into becoming the biggest mobile platform by units.

However those costs did not go away. As the platform grew, they compounded. At first I wondered whether Google management was seriously considering the cost or whether it was giddy with the semblance of success.

Well, finally, it seems that Google management has begun to acknowledge that these costs exist. In a recent Bloomberg story there are many claims that Google is reversing many of the operating principles of Android. Namely:

• Restrictions on who gets what version of software when
• Restrictions on what changes can be made to the software
• Requirements for approval for source code changes

These changes, if feasible, will affect the ecosystem dramatically. It will also reduce the second type of cost associated with the platform (the cost of enabling competitors.)

Good news for Google then.

There are still the other problems (disconnect from business model, loss of goodwill, damage to negotiating power). But there is actually a more sinister new problem brought about with the new crackdown: Android will no longer be disruptive.

I also wrote a few posts (e.g. What has Android done for Apple?) where I claimed that Android has the power to accelerate smartphone adoption, especially in the "Wild East." The power of Android was with the little vendors--the ZTE and Huaweis of the world. They could finally make smartphones cheaply--almost as cheaply as voice phones--and not have to negotiate licenses and pay for software IP.

It would be these smaller "unbranded" vendors that would really disrupt and, with them, Android would become ubiquitous for the billions of mobile broadband non-consumers.

However, with the new policies, it's much harder for this to happen. Smaller vendors will look at the new hoops they have to jump through and probably say "no thanks." In a beauty contest, they don't look so good next to the big brands.

They may turn to homebrewed versions of Linux or new forked Androids. This redefinition of openness will essentially remove Google from the disruptive trajectory of mobile computing.

So we're back to the old question: Google vs. Android, who wins? If Android still has hidden costs to Google and, with its sheep's clothing cast aside, no longer offers significant distribution to the low end then how will Google benefit? The answer that there will be additional ad revenue does not cut it. That revenue would have come from placement deals with other incumbent platforms (just like Google manages to compete on PCs without having to provide its own OS).

As Google figures this out, its licensees are at the mercy of the ensuing decision. Good luck with that.

 

Two years ago:

With new netbooks, laptops, desktops, and, yes, a smartphone, Acer CEO Gianfranco Lanci explains why he expects to soon overtake No. 2 PC maker Dell

via Acer Boss Lanci Takes Aim at Dell and HP - BusinessWeek.

Today Acer CEO and President Gianfranco Lanci resigned with immediate effect. Acer is in trouble. You can read more on Acer's current problems in the wake of the downward revision of its sales targets for two quarters here: Acer Should Overhaul Its Operation: Stan Shih | CENS.com - The Taiwan Economic News

In a nutshell, whereas Acer under Lanci took aim at Dell and HP, it seems that Apple took aim at Acer. And whereas Lanci missed, Apple's aim was true.

What is interesting here is that Acer had a very disruptive approach. They used the low end "netbook" concept to take share from incumbents motivated to move up-market.

But what went wrong? Part of the answer is that "low end" does not just mean "cheap". Low end disruption is about also offering simplicity and performance along a new dimension or trajectory of improvement.

Mobile computing could not be implemented as a low-end strategy because the modules available to portable computing could not be used to make it expand into new contexts of consumption. Windows and keyboards and all the input methods associated with portables could not be adapted to mobility. You could not use a netbook in places or at times when you did not use any other laptop.

In addition the business model was not a good match. Low margins could not support development or new integration that could improve that which was not good enough. Acer did not have the means to tackle the problems of not-good-enough mobile computing. They did not build software and low margins meant that they could not even try to build software.

Competitors also were motivated to respond. HP and Dell built their own netbooks which, arguably, were just as good (or, perhaps more accurately, just as bad) as Acer's. But more problematic was the fact that regular notebook prices dropped to netbook levels and the category came to mean "cheap" not "convenient".

Finally, Acer's strategy did not have the time horizon necessary for true disruption. It takes many years to polish a product and nurture it up the trajectory. Acer was too impatient for growth and not patient at all for profit.

Contrast this with Apple's tablet strategy:

• It dealt with complexity of computing by removing it. This was not easy as simplification required a new platform altogether--something that portable computers could not benefit from.
• It priced low but held on to margins because removal of complexity also reduced cost
• The margins allow it to rapidly iterate on integrated development and improve the product
• Competitors initially were not motivated to respond. They did not have the tools at hand to respond: no integrated operating system for PC vendors, no distribution for phone vendors.
• Apple is also patient enough to wait for several product cycles. Even though demand is astronomical, the iPad still has a long way to go to become a new computing standard. Time is on Apple's side.

Apple is effectively disrupting the PC with asymmetry. It contrasts with Acer's reliance on a sustaining, symmetric approach. The market was showing clear signs of over-service, declining margins, in-absorbable features and performance and complexity.

Calling the winner in 2009 may have been tough given no iPad was visible, but knowing Apple's resources, processes and motivations should have guided observers to the right answer.