Smartphone OS Wars- Who will win?

The world is witnessing a rapid surge in the penetration of smartphones. Between Q2 2009- Q2 2010, the worldwide smartphone penetration increased from 14% to 19% and analysts estimate that US smartphone penetration will cross the 50% mark in 2011. As a result, there is high competition between players to gain the largest share of this market.

Yesterday’s launch of Windows Phone 7 by Microsoft is all set to intensify the battle for gaining control over the highly fragmented and volatile smartphone OS market. Till a few years back, Symbian, the mobile OS from Nokia, ruled the roost with no significant threat to its supremacy.  However, the successful launch and rising uptake of iPhone and Andorid, along with the continued popularity of Research in Motion (RIM) have changed the dynamics of this space significantly. Symbian’s market share has been falling steadily, and stands at 41%, where as that of RIM, Android, and iOS (iPhone operating system) has risen to 18%, 17%, and 14% respectively.   The resurrection of the Windows mobile platform (which was first launched in 2003, rapidly gained market share, and then fizzled out in the face of high competition) is expected to add fuel to the fire.

Though going ahead it is tough to predict which smartphone OS will grab the largest share of the pie, one thing is for certain, the larger smartphone ecosystem- which includes device manufacturers, consumers, applications developers, and carriers- will be the eventual winner.

For device manufacturers, the availability of new operating systems implies wider options. Earlier, they were largely limited to using linux, developing proprietary OS, or adopting the widely popular Symbian platform. Each of these options was either too costly, not rich enough for a great smartphone experience, or developer unfriendly.  Today, handset vendors have a variety of choices such as Android, Windows Phone 7, LiMo (open, hardware-independent, Linux-based operating system for mobile devices), and MeeGo (a joint initiative of Intel and Nokia). Most of these operating systems are based on open standards and therefore enable device manufacturers to customize their models. Moreover, these platforms offer a rich and highly social user experience. These factors will significantly help handset vendors generate user traction and boost sales.

Applications developers will have more choices than ever before to develop and monetize innovative applications. The concept of application stores, pioneered by the iPhone has spread like wildfire and all major platforms offer one. Developers can either choose specific platforms, such as Android or iPhone, to develop on, or offer their applications on a wider range of app stores. Though the latter entails more work in terms of porting applications for different platforms, it also offers higher revenue potential.

Carriers too, will be the beneficiaries of the smartphone OS wars. Majority of these platforms are designed to drive the usage of rich content, social media, multiplayer gaming, geo location services, and a whole range of applications. All this directly translates to incremental data revenue for operators. In addition, an enhanced user experience will help carriers increase stickiness thereby reducing subscriber churn.

In the end, the customer is always the king. And so is the case in the highly competitive smartphone landscape. A wide range of handsets to choose from, a slew of features, competitive pricing, thousands of applications, exceptional connectivity, rich multimedia, and enhanced productivity- there is so much more for customers to look forward too!

Evil Entrepreneur- The changing love-hate equation

As much as everybody loves Raymond, they seem to hate Mark Zuckerberg. He is the new cunning-conniving-arrogant-wicked punching bag of everyone involved in or following the tech industry.  Why? Well, because on October 1^st, “The Social Network”, a movie based loosely on the life of the Facebook founder, will see the light of the day. And this movie does not project him in very good light. The film has acted as a catalyst for some serious Zuck bashing, with sections of the media reporting numerous slander stories- including inflammatory IM and email transcripts from his early days at Harvard. It seems as if everyone was waiting for that one right opportunity to pin him down and strip him naked. Mark is becoming too successful and too rich, and it was time to bring him down.  The poster boy of the startup world has suddenly turned evil.

The technology industry is not new to this changing love hate equation with successful entrepreneurs.  And no one has experienced this more than Bill Gates. Hating Bill Gates and Microsoft has been considered fashionable in the tech world for a very-very long time now - notwithstanding the tremendous contribution made by both the individual and his organization to computing.  Gates has been the original devil, who people love to hate, since his deposition in the 1998 United States vs. Microsoft antitrust litigation. The rise of Google, with its “Don’t be Evil” slogan around the same time frame further fuelled the tirades against him.

Ironically, even the duo of Sergey Brin and Larry Page, the founders of Google, along with Eric Schmidt, the CEO, have not been spared. Once the blue-eyed boys of everyone and arguably the most respected trio in the technology industry, they have been at the receiving end of bad press for several years now. Thanks to multiple criticisms around intellectual property infringement, privacy, censorship, and energy consumption of its servers, along with an increasing influence of Apple, their entire core philosophy of Don’t be Evil has been undermined and become the butt of several jokes.

This trend of putting on a pedestal and then pulling down is a vicious cycle where most of the times we lose all sense of analysis and reflection. Mark Zuckerberg has been caught in the same trap.  People forget that the guy is just 26 years old and has created one of the most disruptive online businesses. He had the balls to turn down a billion dollar acquisition bid from Yahoo. And he is one of the world’s youngest billionaires having surpassed Steve Jobs in the Forbes 400 list of the wealthiest Americans. So, what if he screwed up a bit when he was 19? Genius occasionally breeds arrogance, especially when combined with youth. All of us have made mistakes in our adolescence and learnt from them. Then why not give the devil his due? 

Be it Zuck, Gates, Jobs, or Brin, all of them have created compelling products which have brought about a paradigm shift in the way we use technology. What needs to be understood is that in addition to doing good, these entrepreneurs have a business to run and profits to book. Entrepreneurship cannot always be philanthropic. Promising startups will someday grow into big organizations and start playing by the rules of the market. Underdogs will perpetually keep changing as new ventures, driven by fresh ideas and people, will emerge.

Criticism and feedback help entrepreneurs keep their feet on the ground and constantly innovate. However, turning a blind eye to all the good and focusing purely on the evil, surely isn’t fair on them.

Lull after the Storm- What’s up with 3G?

It has been several months since the conclusion of 3G auctions amidst much global attention and media hype. The government earned more than 67, 500 crores and the telcos ended up with huge debts on their balance sheet. Things, however, seem to have been a little silent off-late on the 3G front. In the next few paragraphs we will dig beneath the surface to understand what’s up with 3G in India.

So, what’s going on?

Since the auction several leading operators such as Bharti, RCom and TTSL have ramped up their existing infrastructure and signed contracts with leading vendors in order to support the launch of 3G services. While Huawei and ZTE are the vendor partners for RCom, TTSL has recently selected NSN as its 3G equipment vendor. Most operators are now waiting for the government to release the spectrum- which is slated to happen on the 1st of September 2010- in order to get their 3G radio network up and running. In all likelihood, customers can expect 3G services to be a reality in India by the end of this year or latest by early next year.

What to expect?

In the voice segment, falling ARPU’s (Average Revenue per User), high competition, and price wars have been the pain point for operators. VAS currently contributes only ~10% of the revenues of telcos, most of which comes from SMS. Operators are therefore increasingly looking at new non-voice services to boost their revenues. The advent of 3G is expected to drive this transition. Consumers can thus expect a host of high bandwidth consuming value added services (VAS), focused primarily on music and gaming, and high speed mobile broadband in the first leg.

Most operators in India are facing an acute spectrum crunch especially in the metros. The newly acquired 3G spectrum will enable telcos to decongest their existing 2G networks by creating more capacity for voice. Consumers are therefore likely to enjoy superior voice quality and fewer call drops.

The combined effect of 3G launch and mobile number portability (MNP) services, which are likely to be rolled out nationally by October 31st, will indeed make subscribers the king! Operators will endeavor to differentiate themselves by offering superior VAS, high quality voice calls, and improved customer service in order to poach subscribers (especially the high income post paid users) and earn incremental revenues. With their numbers not being tied to an operator anymore – thanks to MNP- it will be a win-win situation for customers.

What not to expect?

The 3G auction has cost the operators dearly and most of them have paid hefty prices to acquire the spectrum. As a result, telcos are likely to stay away from tariff wars. Customers should therefore not expect 3G services to be offered at extraordinarily cheap prices as operators will charge a premium for these services.

To begin with, mass rollout is also ruled out as not everybody will be willing to pay for high priced VAS and broadband. Operators will opt for a phased implementation of 3G services with the creamy layer in metros and the major cities being the primary target segment. Though the promise of 3G bringing mobile broadband to rural areas and small towns, where fixed lines have not yet reached, sounds encouraging, in reality this is unlikely to happen as it won’t contribute to an operator’s topline.

Services such as video calling and mobile TV which are being pegged by some to be the main drivers of 3G in India are likely to remain mere hype’s and buzzwords as the main focus of operators will be on segments such as music and gaming which generate high user traction and contribute significantly to operators VAS revenues. Even globally, video calling and mobile TV have failed to make a mark (barring the exception of few countries such as Japan) due to high cost of the service and poor user experience.

3G auctions in India created a lot of buzz globally followed by a phase of silent calm. But this silence is the precursor to the storm which can be expected with the launch of 3G services in India shortly!

Poor uptake of iPhone and Kindle in India- Why’s and Why not’s?

“Eight months after its August 2008 launch, total sales of iPhone were reportedly less than 20,000 units.”

“Estimates of Kindle sales in India, since its October 2009 launch, range from a few hundred to 1000 units.”

The iPhone and Kindle were never expected to have mass uptake in India in their early days. However, it is surprising that sales figures have been so utterly disappointing. High pricing of these devices and poor data speeds in India (especially in the case of iPhone) have been attributed as the main reasons for dismal uptake. Though these factors have some role to play in the India failure of iPhone and Kindle, they seem to be overhyped. Here is why.

Pricing

The iPhone and Kindle, in India, are primarily targeted towards the creamy layer in metro circles and the English reading elite respectively. For these consumers, pricing is not the foremost consideration before purchasing a device. Smartphone shipments in India numbered 480,000 during the third quarter of 2009 and many of these devices such as Samsung’s Omnia, Nokia’s N96, and Blackberry Bold were as highly priced as the iPhone. Similarly, the English reading elite segment is estimated to number nearly 11 million and with very little competition from other e- reader’s, Kindle uptake could definitely have been better despite its high price.

Slow Data Rate

The lack of 3G in India and the inconsistent performance of EDGE networks is another factor often attributed to the poor sales of these devices, especially the iPhone. The argument is that the absence of 3G networks renders some of the functionalities of the iPhone useless, thereby inhibiting user experience. In case of the Kindle, some believe, that one of its most attractive features, which enables users to download a complete book in 60 seconds using 3G connection, will not deliver on promise. However, consumers in India do not necessarily buy phones and other gadgets for functional reasons. The social value and status symbol associated with a device takes precedence in many cases. This is one of the reasons why 3G compatible phones have been readily available in the Indian market since 2005!

The main reasons why the iPhone and Kindle have not taken the Indian market by storm lie elsewhere.

Lack of push from Apple and Amazon

If Apple and Amazon desired, the sales of iPhone and Kindle could have been much higher than where they presently stand. As pointed out earlier, many Indian consumers chose a product based on its perceived societal value. The marketing and advertizing initiatives of both Apple and Amazon have been negligible and hence have failed to create a brand recall for their products. Interest (and hence sales) in the iPhone and Kindle would have been much higher if Apple and Amazon had launched extensive promotion campaigns to highlight their products. Instead, they have chosen to stay dormant in the Indian market.

Lock- in

While the iPhone is available only to subscribers on Airtel and Vodafone networks, Kindle users are limited to books from the Amazon store. Such tie-in’ not only hinder user uptake but also limit distribution (in the case of iPhone). Unlike their counterparts in US and Europe, Indian operators do not have the experience of selling handsets aggressively. As a result, the distribution of iPhone was negatively impacted by Apple’s decision to rely only on Airtel and Vodafone.

Grey/Overseas Market Purchases

Many gadget freaks in India chose to purchase these devices from grey or overseas markets either to avoid operator and application tie-in or save on overhead costs. Several users buy the iPhone from countries such as the US and then jailbreak it in order to accept any SIM without restriction or use applications that are not available from Apple's store. In case of the Kindle, a purchase in the US saves users additional shipping costs and custom duty.

India is an attractive market for both the iPhone and Kindle. However, for device sales to pick up, Apple and Amazon need to adopt an aggressive strategy and focus more positively on the Indian market.