This post is in response to a debate between Steven J. Vaughan-Nichols and Matthew Miller titled “Nokia’s Android X: Madness or Genius for Microsoft?“.
It seems to me that all of SJVN’s arguments are based on the fact that Android dominates the mobile device market share. Let’s see if having a huge chunk of market share translates into huge profits.
Apple has always gone ahead with a closed, vertical ecosystem. It has its own proprietary hardware and software which it does not share with other players. When it comes to mobiles, it owns the device, the OS and the store. All these combine to generate 56% of smartphone revenue worldwide. This, with just 15-20% of the smartphone market share! This is because Apple’s is a very vertical ecosystem. It owns EVERYTHING it sells! Moreover, it is least bothered by market share statistics. It continues to ignore it all the way to the bank!!
Let’s examine Google. They have an awesome OS, a large app store (with a sizable amount of junk and malware), but lag behind in the device segment. Of course they have the Nexus line, but it is nowhere to be seen in market share reports. And it is common knowledge that Android does not generate enough revenue to keep its developers happy. In fact, all its revenue is generated by just one manufacturer: Samsung! Also, Google has a very horizontal approach: they have made Android freely available to everybody so that they can sell their services and make money through it (which is completely different from Apple’s approach). It is no surprise then that a majority of the Android devices and apps are crappy.
Let’s look at Samsung now, which uses Android in a majority of its devices. Samsung is not just a mobile device manufacturer, it is also a hardware manufacturer. When it comes Samsung’s electronic devices, we get to see a lot of the closed ecosystem that Apple thrives on. It is no surprise then that it is trying to emulate this in its mobile segment as it tries to save its 53% profit share in the mobile segment. It owns only the mobile device as of now but it is trying to change this by developing its own mobile OS and Store. Though it is too early to say how successful the new Tizen OS will be, the shift in Samsung’s strategy cannot be missed: it is aiming for the closed, vertical ecosystem that Apple has. If, say, Tizen hits the market and becomes Samsung’s official OS on its devices, this would be a body blow to the Android OS, which does not have any other profitable mobile manufacturer. Android could very well lose its market share over a period of time and iOS would emerge as the leading mobile OS. This is, of course, hypothetical, but it is a very realistic possibility nevertheless.
In this regard, Microsoft is in a unique position right now. It has the freedom to shape its strategy at an early stage of its mobile ecosystem development. Does it want to have a horizontal ecosystem like Google and sell its SaaS and IaaS services through its mobile devices? Or should it go for a vertical ecosystem like Apple and own the device, OS and store? In the recent past, Microsoft’s strategy has begun to favour Apple’s: it has a new mobile OS, a fully-owned mobile store and it has acquired the mobility division of Nokia.
When it comes to Windows Phone 8, it is not a bad OS. Granted its app store has a fifth of the number of apps in the Play Store and the App Store. But that is to be expected as WP8 is just 16 months old whereas Android crossed 66 months and iOS crossed 74 months. Given enough time, I am sure it will have a sizable developer community that would drive its store. In fact, 200,000 apps in 16 months is not bad at all!
SVJN is of the opinion that MS would do good to scrap WP8 and sell its services over Android. I ask, why can’t MS make its services exclusive to WP8? Does it really have to embrace an OS that is controlled by Google through its Play Store, a fact that prompted Samsung to go ahead with Tizen? I guess not. In this context, I think it was somewhere between madness and brain-dead for MS to launch an MS-Android project. I agree with Matthew that this could be a short-term project more than it being a long-term strategy by MS. And it would be closed down in the coming months. MS needs to put its weight behind WP8 and aim for an integrated ecosystem between its sizable PC/Laptop market share and its mobility space, much like Apple has with its integrated services for Macs, MacBooks and iPhones/iPads.
A sizable market share does not equal a sizable profit share. Having the right ecosystem that truly adds value to the services on provides guarantees a sizable chunk of profits. The reason why Samsung has high profits even though it does not own the OS and store is because it entered the smartphone race very early and continues to innovate. For Microsoft, it cannot hope to emulate Samsung at this stage. Its only chance is to develop its own ecosystem similar to Apple’s: own the device, store and OS and forget about the market share.