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[Report] Mobile Platforms: The Clash of Ecosystems
[We at VisionMobile have been researching and helping to educate the industry about mobile platforms for the last five years. In this time mobile software has evolved from the world of “open OS” to the world of complex ecosystems, network effects, app stores which are redefining the rules of telecom industry. Today we share much of this knowledge in our Mobile Platforms: The Clash of Ecosystems report - a critical analysis of major mobile platforms and their battle for dominance - free download here].
Mobile platforms are at the center of the epic battle between Internet and telecom giants. The competition is not just about technology, performance, user interface or openness. Today’s mobile platforms win and lose by the strength of their ecosystems of developers, service and content providers.
In the report the Mobile Platforms: Clash of Ecosystems (free download here) we break down Android, BlackBerry OS, BREW, iOS, Symbian, Windows Phone and webOS across key elements such as history and origins, owner agenda, ecosystem adoption, market penetration, technology foundations and application development experience. Clash of Ecosystems is part-funded by webinos, a project aiming to deliver an Open Source Platform and software components for web applications across mobile, PC, home media (TV/set-top boxes) and in-car devices.
The report dives into several key trends underpinning the era of mobile platforms and ecosystems – designed to help developers, software companies, entrepreneurs, enterprise CIOs, brands, handset makers and operators to better understand the dynamics of mobile platform competition on intersection of economics and technology.
Smartphones go mainstream, but the devil’s in the details. Just two years ago, smartphones were viewed as expensive toys for geeks and Apple fan boys. No longer. Smartphones have entered the mainstream in developed markets, and are taking a growing proportion of device sales in more cost-sensitive markets around the globe. In the third quarter of 2011, smartphone shipments penetration surpassed 29% globally, although this figure varies widely from nearly 65% in the USA and over 50% in Europe to 19% in Asia-Pacific, 17% in Latin America and 18% in Africa/Middle East.
The leaders, iOS and Android, are driven by economics of demand. Handset sales are driven not by hardware features (“what the handset can do”) but the user interface and applications available (“what you can do with the handset”). Much like any smartphone platform, iOS and Android are driven by economics of demand, where the demand generated (incl. the number of applications) has a far stronger effect on sales than pure supply chain efficiencies. As of October 2011, iOS and Android are leading the way, with over 500,000 and 300,000 applications, respectively. The rest of the platforms trail far behind with order of magnitude less applications: BlackBerry has 35,000 applications, Windows Mobile 30,000 applications and Symbian 25,000 applications.
Successful platforms are a magnet for financial investment. Application platforms like iOS and Android are able to attract huge financial investments on the part of developers, investors and brands. Taking iOS as an example, and estimating that an app costs an average $30,000 to develop, the 500,000 iOS apps represent an average investment of $15B in the iOS ecosystem. This investment directly contributes to Apple’s bottom line, and its estimated $71B iOS-powered device sales.
App stores are about controlling ecosystems, not profiting from content. The app store business is the polar opposite of the telco content business. As such, application stores like Apple App Store and Google Android Market should not be mistaken for profit centres. Instead, Apple and Google leverage app stores as ecosystem control points. With over 85% of iOS and Android downloads coming from free apps, the 30% revenue share from paid apps subsidizes the operational cost of app intake and distribution, which runs at over $1.2B to date in the case of Apple.
The rising star of HTML5. HTML5 has the potential to become a common bridge system across smartphone platform islands and the sea of feature phones. HTML5 is the only common app technology supported by Android, iOS, new versions of BlackBerry OS and Windows Phone platforms. With 225 million Android devices and 146 million iOS devices (UPDATE: this figure only refers to iPhones and does not include other iOS devices) sold to date, HTML5 is supported by over 371 million mobile devices today, albeit with mixed levels of compatibility.
Microsoft, Facebook, and mobile operators have very different motivations but are all eyeing HTML5 as a technology that could help dis-intermediate app stores as content distribution silos, reducing the power of Apple’s iOS and Google’s Android platforms.
However, in its present state HTML5 can neither challenge nor displace the leading mobile platforms. In order to become a viable alternative, HTML5 needs to move beyond being just a development tool, and to converge around a dominant solution for web application discovery, monetisation, distribution and retailing.
Mounting developer acquisition costs. Platforms need apps to thrive and developers are the growth engine of the smartphone ecosystems. At the same time, developer attention is scarce; developers are very critical “platform consumers” and need to make far higher investments when adopting a new platform. We estimate that the minimum acquisition cost for a publishing developer is over $2,300 in the case of Apple. As such, Apple, Google, Nokia, Microsoft and RIM have needed to invest billions of dollars in persuading developers to write apps for their platforms.
Moreover, developers are motivated by a complex set of incentives, which includes revenue potential, user reach, ability to raise funding, and the pure coolness or utility of a platform. These incentives vary widely across different types of developers and as such call for developer segmentation as a critical cornerstone of any developer strategy..
Software players put mobile operators on the defensive. The app innovation unleashed by smartphones puts pressure on traditional telecom profit centres, not only around value-added services, but also on core messaging and voice services.
Apple and Google combined control the user experience of nearly 400 million users through their iOS and Android platforms. Both are strategically reducing the role of mobile operators to that of “connectivity providers”. Internet giants like Facebook and Amazon are using social-centric and retail-centric strategies to profit from mobile. Startups such as Foursquare and Instagram have pioneered mobile-first services. Communication companies like Skype, WhatsApp and Viber put pressure on core telecom services, notably SMS and voice.
Incumbent mobile platforms lose to next-generation challengers. In the last decade we‘ve seen over 20 mobile platforms rise and then die not being able to achieve critical mass. Next-generation platforms (iOS, Android and Windows Phone) have achieved sustainable growth by leveraging on network effects and developer economics. Legacy platforms on the other hand (Symbian, BlackBerry OS, BREW and Windows Mobile) have been designed to handset vendor rather than developer requirements; all have either been discontinued or pushed into narrow market niches. Companies with strong software DNA (common in the US) now dominate the smartphone platform landscape.
No single winner: mobile platforms will remain a multi-horse race. The mobile market will continue to be a multi-horse race for many years to come. iOS and Android will continue to lead, dividing the market between premium (iOS) and mass-market product segments (Android). Self-reinforcing network effects, gigantic application ecosystems and the rapid pace of platform evolution make the positions of Apple and Google unassailable. Windows Phone may only challenge BlackBerry for the third place rank.
Patent wars. Apple and Microsoft are trying to leverage their own patent portfolios and paying billions of dollars in patent acquisitions in an attempt to slow down the meteoric growth of Android. Apple’s strategy is to block Android sales starting with Samsung, although with mixed, regional and temporary successes. Microsoft is using an altogether different tactic, namely patent taxes, to coax OEMs like Samsung and HTC away from a higher-cost Android. At the same time, Google is planning to defend Android through the pending acquisition of Motorola Mobile Devices, and its portfolio of over 17,000 patents. We expect a culmination of the patent wars in a multi-vendor consortium designed to standardise cross-licensing agreements across Android, iOS and WP7 handset vendors.
Comments welcome as always,
- Michael V