Device ecosystem battle catches carriers

OvumThe third quarter of 2012 saw the main focus among major OTT and smart device vendors return to hardware and the software platforms that power them, following several months when new service launches and growth dominated.
Key developments in the quarter affecting service providers include the launch of Apple’s iPhone 5, strong sales for Google’s Nexus 7 tablet, the launch of new members of Amazon’s Kindle Fire tablet family, and previews of numerous devices based on the Microsoft’s Windows Phone 8 and Windows 8 RT software platforms, many of which are now available.
Device arms race underpins battle for ecosystem control
Device shipments are a key indicator of the potential of major OTT and smart device vendors to disrupt the relationship between carriers and their subscribers, providing the “Trojan horses” on top of which those same companies launch their own competing services. The level of inter-application integration and single sign-on achievable using this approach helps improve user experience and creates a considerable amount of “stickiness” both to the service themselves and to the underlying software platform, if not necessarily to the hardware vendor (unless the hardware vendor is also the device manufacturer).
Moreover, the device software platforms owned by the major smart vendors, namely Apple, Google and Microsoft, also provide the keys to controlling ecosystems of third parties (e.g. application developers, content providers, and advertisers). As such they are also the primary cause of carrier disintermediation both in terms of existing and potential business models.
They have also become a closed shop, with few – if any – other vendors now in a position to break the stranglehold on the device market possessed by these companies. Some are at least trying. Amazon’s Kindle Fire – based on a forked version of Android that is not integrated with Google Play – is a good example of this approach, although not one that is likely to threaten the major players in terms of absolute volume shipments.
Nor is having the right business credentials a guarantee of success in this market as Microsoft has found. Nonetheless, Ovum still considers Microsoft as the only serious candidate to fill the much hoped-for “third ecosystem” after Apple and Android. The only other candidate that Ovum sees here is Samsung, whose growing strength in smart device hardware is partially undermined by the low potential for it to leverage that hardware to pursue additional business opportunities.
Unless Samsung is able to successfully transition most of its hardware production over to an OS of its own. However, this seems unlikely to us at the time of writing due to the colossal investment necessary to make any such software platform as rich for end users and third parties as those of its major competitors.
Service providers must pick their battles wisely…
The most practical response to Apple for most carriers is simply to accept that they will have very little influence over Apple device users beyond providing mobile broadband access, customer care and billing and to divert their attention to adding value to the remainder of their smart device subscribers.
While carriers should also remain wary of Google’s influence over subscribers – which is on course to be even greater than Apple’s if it is not already – there remain opportunities to add value to Android devices users on account of the platform‘s openness to third-party applications, even those that compete with Google’s own services.
However, even these opportunities are drying up as Android OEMs increasingly take it upon themselves to invest in high-value, best-of-breed applications and content (either developed in house or through partnerships) in order to differentiate from their device rivals. Carriers need to be very sure that any additional services and applications they bring to smartphones and other smart devices genuinely add new value to existing device propositions.
As for other key OTT and smart device players, especially RIM and those circulating around Microsoft’s axis (especially Nokia), it is currently unclear whether they will be able to improve their positions relative to the current duopoly of Apple and Google, despite the high-profile launches around Windows 8, Windows 8 RT, and Windows Phone 8. Carriers must decide whether a desire for greater diversity in their device portfolios, both in terms of OEMs and software platforms, is a competitive necessity or merely a preferred state of affairs.
…while taking responsibility in delivering device diversity
If portfolio diversity is deemed to be a necessity, carriers must accept greater responsibility for helping promote, sell, and generate consumer “buzz” around these alternative brands and platforms. This looks to be the only way currently to curtail the power of Apple, in particular, and the strongest Android OEMs, especially Samsung, within the subscriber base.
In terms of alternative platforms, indications of future recovery are stronger in Microsoft’s camp than in RIM’s. The software giant’s strategy for encompassing smartphones, tablets, PCs, and TVs (via Xbox) with a now unified user experience looks well thought out, although clearly its smartphone hardware partners, most notably Nokia, are currently struggling. RIM, however, seems to be in a difficult position and it is uncertain to us what chance it has of recovery as its power to define and control ecosystems declines.
A complete summary of OTT player and smart device vendor activities in 3Q12 can be found in the report OTT and Smart Device Vendor Roundup: Third Quarter 2012
Tony Cripps is principal analyst for devices and platforms at Ovum. For more information, visit