Google Android Open Source Strategy – Fueled Market Dominance in Blue Ocean Smartphone Market – Criticism, Threats & Future Outlook 2015

Android is a pack of software for mobile phones that contain an operating system with middleware and key applications which was originally developed Android Inc. that was acquired by Google  in 2005 and T-Mobile launched the G1 Android phones manufactured by HTC in 2008. Android is now the largest OS in the smart phone market with 44% market share in Q3 2011. Android is an open source mobile platform where any one can create applications and sell them through Android Market. Android has close to half million apps in Android Market as of now. Android phones are being launched by mobile makers like Samsung, Motorola, HTC and other players that are easy to use and often come with functionality and features that are more powerful and useful than the Apple iPhone. Android phones were initially launched with bigger screens, resolutions, multi touch screens & powerful chips like 1GHz Qualcomm snapdragon processor compared to 512 MB RAM of iPhone. Google is also investing in building its own smartphones as it recently announced to buy Android phone maker Motorola Mobility for $12.5 billion. Android Market is where developers sell their apps and the number of Apps in the Market has rose rapidly in the last two years. Android also has support from multiple networks AT&T, T-Mobile, Verizon, Sprint, etc.

Google still has central control over the code but allowed various manufacturers to flood the Market with Android phones at various price points and the wireless operators have pushed them into the market through advertizing and various subsidies on the devices and data plans. Consumers too embraced the device as suggested by market share figures. Google Android targeted the 81% percent market that were not using the smart phones and target this uncontested market as part of the blue ocean strategy, with devices that had features, functionality and apps. Google strategy is completely opposite to Apple strategy of total control of the hardware, software and ecosystem. Android completely opened its ecosystem to the developers and the mobile manufacturers and it has do it since it is targeting the rest of the 80% market that Apple ignored and it realized it cannot do it alone with its proprietary product. Google initially launched its own mobile device called Nexus and it realized how tough it is to manage the product that it developed. Google announced the Open Handset Alliance to create an open platform (Android) for a Linux phone that can run mobile Google apps and others. The 34 partners include T-Mobile, Sprint Nextel, NTT Docomo, China Mobile, Telefonica, Telecom Italia, Motorola, Samsung, HTC, Qualcomm, Intel, etc. Google is also looking to control its android ecosystem and is asking licensees to follow certain guidelines. Google strategy has worked well and it gave dominance over the smartphone market.

Android Success factors and Criticism

The first and foremost factor for Android tremendous success is the Google decision to let Android be open source platform. Google formed the Open Handset Alliance with 34 partners that included Wireless carriers, mobile makers, chip makers and independent software vendors. All these partners have flooded the market with smartphones that not only increased the size of the smartphone percentage to the overall market of the mobile phones but also provided consumers with a wider choice of handsets with various features and functionalities. Google too supported these partners through the continuous improvement of the Android Platform (Upcoming 3.0 Version) and mobile makers launched handsets that are superior in performance in terms of hardware, software and designed handsets that attracted consumers to buy. Marketing and advertising strategy by the mobile makers and wireless carriers is also significant factor as there have been some good advertisement campaigns like the Motorola Droid etc, and the subsidies in terms of price and data plans by wireless carriers. The brand awareness of Android has increased tremendously and it is evident from the dominant market share of the Android phones in the Global Smartphone market. Added to this the reputation of Google itself also played a significant role and Google enjoys the confidence and trust which it gained from search and other apps. The failure of Research in Motion’s (RIM) Blackberry, Nokia’s Symbian phones and delay in launch of Microsoft Windows Phone 7 also help propel the Android into market dominance. Samsung, HTC and Motorola have launched handsets that have been able to attract the mobile users and are giving stiff competition to Apple iPhone.

Superphones are another category that is dominated by Android and the units are increasing slowly. Superphones are high-end smartphone devices that feature a display measuring more than 4-inches and are powered by a processor of at least 1GHz. The success of Android Marker Place where apps are sold and bought is another success factor. Developers are developing apps for Android devices and the number of apps has reached close too half million. But the fact remains the number of downloads and the revenues generated by the Android apps is lesser than the Apple’s iTunes and App store. The availability of many apps is attracting consumers to buy millions of Android phones along with price reductions and various subsidies. The average selling price of Android phones is lesser than the iPhone and so the margins. Android phones are also criticized in terms of the quality as the phones suffer more failures when compared to iPhone and the software updates are not provided to all the consumers as various mobile makers make handsets with different specs which cannot be upgraded on a common platform. Android updates come regularly but handset owners cannot update their phones as the mobile makers’ from whom they bought the devices don’t provide them. The sheer number of android devices and different manufacturers is a cause of concern and Google which has the central control on the Android is tightening the screws by asking the licensees to stick to the standard guidelines.

Steve Jobs criticized Android had stolen key features of iPhone and its operating system and vowed to destroy Android. Microsoft claims ownership of patents on several technologies used in Android and is collecting royalties from mobile device manufacturers like HTC and filed suit against Samsung, Motorola, etc. Apple is suing HTC and Samsung for patent infringement in terms of multi-touch, zoom, etc and filed suit in court and claims with the US ITC, asking to ban imports of Samsung and HTC devices running Android. Oracle is suing Android claiming it violates Java-related patents. Google is also supporting all the device manufacturers that are using Android in the legal cases relating to patent infringements and it is promising OEMs all the necessary support across the globe. Google recently acquired Motorola Mobility for US$ 12.5 billion which not only strengthens their mobile strategy with Motorola patents that came with the deal but also affect the way the Android ecosystem will be controlled and run in future.

Android Future Outlook
Android phenomenal rise in the last two years has caused ripples in the smartphone market. Every player in the smartphone market like Apple, RIM, Nokia and Microsoft have total control on the hardware, software like Operating System, and ecosystem as a whole but Google went against this total control to open source make Android available free to all the stakeholders and adopted a strategy where in they don’t want to compete with iPhone at the top end of smartphone market rather focus on the 80% market that are not iPhone users. This has worked really well for Android as the mobile makers have flooded the market with Android Phones and captured 45% of the smartphone market. Google close collaboration with manufacturers including the chip makers and carriers who needed devices and ecosystem to counter the dominance of Apple iPhone as Apple dealt with only AT&T and all other carriers flocked Google Android for competing. This has worked really well for the carriers, android phone makers, to the consumers. Android phone makers sold millions of devices that are high, mid and low end at all the price points. This also caused some problems like device failures, software updates and Android reliability is under question. Google started to focus on this issue and has come with standard guidelines for the licensees. Most of the software updates are not available for devices and consumers are facing difficulties in upgrading their software and some instances have to pay for updates also. Android has to come with a strategy to allow users update their phones.

The legal problems and the patent cases look ominous and expected to affect the Android mobile phone makers and overall android market share. Analysts and Research Firms expect the Android market share will be less than 50% by 2015 as the android makers have to pay royalties and fees in respect of the Legal cases and settlements and will definitely raise the cost and ultimately the prices. Oracle, Microsoft and other companies that are suing Android and mobile makers are not only asking for royalties but also seeking bans on the usage of  specific technologies, functionalities & features and which will force the mobile makers to invest money and resources to develop ways to go around and develop their own technologies. Apple is trying to ban Android phones in various markets but did not have much success till now. Google legal battles are scaring the mobile makers and forcing them to look at alternatives for Android. These will definitely slowdown the Android growth. RIM and Microsoft that are not at all doing well presently, have developed own OS and devices and are launching them next year are confident to regain their lost market share. RIM and Microsoft are slow to come up with the advanced technologies, but analysts and research firms believe that Microsoft will recover its lost market share at the expense of Symbian and RIM is expected to hold on to 13-14% market share in 2015. Nokia adoption of Microsoft Windows Phone 7 as primary smartphone operating system and Samsung and HTC looking to launch more Windows Phone 7 phones with support from Microsoft will work in improving the Windows Phone 7 favor.

Google recent acquisition of the Motorola Mobility is also causing concern for the mobile makers. Mobile makers think Google will not provide total support for the other Android phone makers and will hold critical android updates with itself thus causing them problems. But there is still no clarity, how Google will use the Motorola Mobility whether it will use it to create benchmark designs, reference experiences and products for the android makers as Motorola has a great design and development team. Google has designed Android to offer three types of handset projects: Experience handsets (based on Google specs and branding), Partner handsets (compliant with Google’s Android specs, but with no Google involvement or branding) and DIY handsets (take the source code and fork it, but you‘re on your own, e.g. China Mobile’s oPhone). Google also have to launch marketing and advertising campaigns along with the device manufacturers and wireless carriers to push more android phone into the market. Google does not look at Android as its core for making money but it wants Android to increase access to the Internet as it is looking to increase the increase the number of devices will help it increase its ad revenues through search, email, and other apps. Google is committed to Android and it is promising support to mobile makers that are launching Android phones as Android is essential for Google future revenue growth. More number of mobile devices with internet capability will provide an opportunity for Google to increase its revenues as the mobile users need browser for browsing internet, search engine and applications. But it needs to control the ecosystem in terms of uniformity of devices, prices features and how software is updated. Android is also extending into tablets and other devices like TVs, etc and the success in this segment will also play a major role in the future development and growth of Android.

Major threat for Android growth is Apple launch of new iPhone that is focused on the mid range market and emerging markets. If it is launched in next year then Android will see very tough competition along with the legal battles. Apple is an iconic cult brand that will rapidly erode the Android market. The legal battles may have affect on the prices in terms of prices of handsets raising but the price of Android devices even with the raised prices will be lower than Apple iPhone. The average selling price of high end Android devices is very close to iPhone but the margins per device is low and mobile makers have to look to improve their margins. Google Apps revenue is far lesser than Apple Apps revenues. Google realized that Apple initially created market for Android Devices in 2008 and because of Apple focus only on High end market and single device model led to the rapid growth in volumes but the smartphone has changed in 2011. Nokia, RIM and Microsoft have lost their market share as they were unable to meet the consumer demand and read the smartphone market correctly. Their loss was Android gain, but now Microsoft have realized their mistake and launched its latest Windows 7 OS and has tied up with Nokia, Samsung, HTC and other mobile makers to launch smartphones using their OS. RIM too is launching its QNX OS based Blackberry 10 series phones in 2012 and confident that it will regain its lost market share. Wireless carriers and mobile makers are looking for third ecosystem to counter Apple iOS and Google Android and hope Microsoft Windows Phone 7 will give them this edge and it is getting the same support that Android got initially that helped it to market dominance. Smartphone market has seen significant changes in 2011 and changes are expected to continue in 2012 and Google Android strategy has to be changed accordingly. Google needs to settle the legal battles, control more tightly the android ecosystem, keep close eye on its competitors as they are launching new products next year and look to increase its install base as it will help increase the Google revenues.

Apple iPhone no longer in Blue Ocean Market- Change in Strategy essential

Apple launched iPhone in 2007 which is an internet and multimedia enabled Smartphone with touch screen and has totally redefined the Smartphone market. Apple iPhone has become a cult device and five generations of iPhone models have hit the market till now and Apple sold more than 100 million units till now. With half million applications in app store for the consumers to play with, iPhone is a great device that revolutionized the Smartphone segment with features like a portable media player (iPod), an Internet client with email, web browsing capabilities, multi touch screen, 3G connectivity, camera, etc. iPhone has provided consumers with an unique experience and has generated significant revenues and profits. Apple iPhone created a blue ocean market where it has total control of everything from the product design, pricing, software, app store and development to the way it markets and sells its iPhones. Apple had a created an uncontested market at the high end of the smartphone market and its iPhone has offered the mobile users a very unique experience that has become a benchmark in the smartphone industry that all the other players are trying to achieve. Hardware, software and the developer ecosystem is the best in the world and Apple is dominant player in the application market. Developers love to work on the Apple OS as it is one of the best OS in the world and it allowed them to create numerous applications and make money selling them. Apple developers get 70% revenue of the sales.

Initially only AT&T was authorized to sell the phone but many other carriers across the world are selling. Apple had been able to sell the iPhone at a premium and consumers are more than willing to pay the premium because iPhone was such a magnificent device with functionality and half million applications in the app store that allowed its users to use for everything. Apple has total control on the hardware, software and provided limited access to developers to its code and it tightly restricts the apps on its app stores and allows only apps that are approved by it. Apple has single product and price strategy and focuses all their R&D, engineering, hardware, software efforts on just one product. Apple has the highest profit margin per iPhone and its pricing strategy has been remarkably as it launches its new versions at higher reference price and subsequently lowers the previous versions price. Recently it reduced its iPhone 3GS price to zero with contracts and it is not relying only on hardware sales but also on the sales of apps, music, movies, videos etc on its iTunes store.

Apple iPhone has transformed from a GSM phone to a 3G network capability in second version but the screen size and the home button placement remained as a standard. The 3GS models came with a bigger difference like faster processor, better camera with video and better OS. The iPhone 4 is thinner with a wider brushed stainless steel band, aluminosilicate glass panels, with video conferencing capability, high resolution display and powerful A4processor. The iPhone 4S came with 8 mp camera with video recording, face detection, dual core processor, multi-standard wireless support and a natural language voice control system called Siri. Apple iOS, the operating system initially developed for iPhone has been extended to iPod Touch and iPad. There have been five versions till now and it has been enhanced further with multi tasking capability in fourth version and the OS has been constantly developed to add more functionality and features.

Change in Apple iPhone Strategy

Apple has always believed in quality rather than quantity and focused on the high end premium market. iPhone has been costly when compared to other smartphones but Apple tried to keep the premium pricing close to its competitors premium model price. Initially AT&T was the only carrier selling the iPhones until February 2011 and since then Verizon and Sprint started selling iPhone and in October 2011, C Spire Wireless announced that it would be carrying the iPhone 4S. iPhone was originally launched in six countries in 2007 but now Apple has launched it in around 100 countries.  For the first time Apple has three models of iPhone 3Gs, 4 and 4S with prices ranging from Zero for 3GS with contract, US$ 99 for 4  to US$400 for 4S. Apple has to reduce the price for the older models as the Android Models have flooded the market at the lower price levels and have successfully captured the market and made it the number one in the smartphone market in just three years. Another factor that forced Apple to reduce the price despite good 4S sales and not make the 3GS obsolete is that there has been no wow factor for the 4S model as the consumers were not attracted by the faster chip, better camera and voice activated personal assistant software Siri.

Apple has also been criticized for not having a proper pricing strategy for the emerging markets as iPhones come with huge price tag. There have been a rumors that there will be smaller version of iPhone specifically targeted towards the emerging markets but till now it is no there. But Apple is reducing the price of the older versions of iPhone but these versions are outdated and with less features and functionality compared to the Android phone models that come in all sizes, prices and powerful hardware. Dependency only on the high end market will lead to limited revenue growth but with significant margins. Most of the analysts and Research firms forecast Apple to keep its market share at around 16-18% of smartphone market by 2015. Other Smartphone players like Samsung, RIM, Nokia, and Microsoft are aggressively looking to improve their market shares with new products. Even Android that is holding more than 50% smartphone now is expected to hold around 50% market share by 2015. Initially Apple did not focus much on the enterprise segment but with businesses and other organizations changing their strategy where they are allowing employees to bring in their own devices and integrating them with their IT infrastructure, Apple has a good opportunity to improve sales in this segment. Some of the companies are even buying iPhones as enterprise device for their employees as Blackberry is losing out due to product failures. Apple needs to support its enterprise sales team.

Smartphone market - Red Ocean

Smartphone market has become a big Red Ocean with many mobile makers launching phones that are even more powerful and feature and functionality rich than the iPhone. There has been patent wars going on between all the players and each one of them is trying to block others legally but they are not able to do it. Android, Microsoft and RIM are also invested heavily in their ecosystems and wireless carriers are looking to have multiple eco systems so that they can offer more choice to their customers. Wireless carriers, Google, Microsoft and Mobile phone makers except Apple are looking to convert more mobile phone users to smartphone users. They have been successful in their strategy as the percentage of smartphones has been rising and expected to reach 50% of the total mobile phone market. Apple has to be part of this strategy and look for a less costly iPhone as the reliance only on the high end premium market will always be risky. And there is also a risk that all the other players will bring down the average selling price and no matter how iconic and cult following the brand has Apple will loose the market to its competitors. The success of the Samsung Galaxy phones, HTC Smartphones and the yet to be launched new phones from Microsoft and RIM next years will be deciding factor for the Apple iPhone future success. Smartphone makers are adopting various strategies to survive in the market like collaborating with software developers, investing in R&D for designing new devices with differentiation, attracting more developers to develop more apps and also working closely with wireless carriers to understand the local market dynamics and consumers.

Application store iTunes with Apps was Apple’s another success factor. But now Android has Android Market Place with Apps matching Apple’s app store, Nokia Ovi Store and every mobile manufacturer coming up with their own app stores, Apple is loosing its advantage. Developers are developing for other stores as they are also competitive 70-80% revenue share. Apple also launched another unique offering to its customers which is the iCloud, iPhone users can back up and store their data and content on the cloud. Everybody in the Smartphone market is investing heavily in R&D and realized innovation is must for success in the market. Consumers are looking for powerful devices that offer them more functionality and feature and help them in their day to day life. Mobile manufacturers are launching low price smartphones in the emerging markets that come with essential smartphone features and are pushing them through the wireless carriers with subsidies in price and data plans. Wireless carriers are also upgrading their networks as the smartphones put a lot of pressure on their existing networks and they need to push more smartphone to recover their investments in infrastructure. Marketing and advertising strategy is also essential as the mobile manufacturers have to invest millions to promote the products and educate the consumers about the device functionality and features as they do not have a brand like Apple that is considered to offer most innovative and disruptive products. Under the charismatic leadership of Steve Jobs, Apple has been able to keep customers interested in its iPhone and sell millions of iPhones, but without Steve Jobs one has to see how Apple will do in the coming years. Apple has to keep its innovating and change its strategy according to the consumer needs and also keep a close eye on its competitors.