Mallinson: Android's midlife crisis comes early

As with child actors and pop stars that hit the big time while still very young, Google with its Android operating system is found lacking versus more mature players Apple, Microsoft and even Research in Motion in certain respects. Android's first few years of exemplary growth might not be sustained.

Android has been enormously successful in gaining smartphone market share with around with 22.7 per cent of 296 million devices sold last year, according to the research firm Gartner.  However, Gartner's prediction for Android to more than double its market share to 49 percent of a forecasted 630 million units in 2012 is jeopardised by the significant challenges the platform faces.

Distracted Developers

The long-term success of Apple and Google and others in smartphones and tablets significantly depends on ability to attract and hold third-party developer support. The more a platform provider can draw unique and superior content, the more appealing the platform is to end users. According to Flurry Analytics, developers have recently been switching a significant proportion of their efforts towards Apple's iOS and away from Andriod. This might have occurred due to temporary factors such as the launches of a CDMA iPhone for Verizon Wireless' network and the launch of the iPad 2. Is it just this kind of short term adjustments or a new long-term trend with more strategic factors that are taking their toll on the outlook for Android?
















Fragmentation

One of the reasons Apple's iPhone has been so successful is that it eliminated the heterogeneity that hampered market demand and development of the mobile web. Not only did the iPhone's Ford Model T-like uniformity make it easy for developers to write applications for iOS--without the hassle and major cost of producing many variants for different screen sizes and keypads--it also enabled satisfactory access to regular web pages that was previously not possible on any phone. Apple's vertically-integrated approach, including handset and chipset hardware, software and supporting ecosystem with its iTunes-powered App Store ecosystem, has uniquely driven the smartphone revolution.

Following lacklustre performance from Microsoft with Windows Mobile, the company has tightened its focus with Windows Phone 7 by concentrating on only one silicon platform so far. Handset hardware partner Nokia is adamant that cohesion between hardware and software will be much better than with Android, while also offering Nokia's customers a unique look and feel. Whereas RIM has plenty of its own problems, it has benefitted from also having a vertically-integrated approach including its own operating systems layer, handset design and modem protocol stack. 

At first, Android went a long way towards matching the delightful user experience provided on the iPhone. However, whereas Apple has maintained its tight vertical integration, the horizontal business model with Android on many different vendors' phones has caused Motorola with its MotoBLUR interface and others to employ assorted user interface software and various silicon platforms for baseband and applications processors. This differentiation enriches competition and end-user choice, but at the expense of increased overall implementation risks, quality problems and with additional costs to ecosystem partners including developers. Open software has been plagued with these kinds of fragmentation issues for several decades with various platforms including many flavours of UNIX and with mobile editions of Java in the last decade.

The cost of a free lunch in IPR

The news is out: Android is not free after all. One of the issues with intellectual property rights is that it is not always clear in advance of implementation which IPR is required and how much it will cost. Whereas open standards organisations such as 3GPP with partners including ETSI have clear IPR policies that encourage standards-essential patent disclosure and bilateral licensing (i.e., outside of standards-setting meetings), there was a widespread but false belief that open source software would not cost anything to use. While developers contribute code to open source programs royalty free, there is typically neither a promise that open source software does not infringe others' IPR nor any indemnity for infringement claims against licensees. In contrast, major proprietary software suppliers such as Microsoft have large patent portfolios themselves and extensive cross-licensing with other owners that can afford licensees significant IPR protection.  Similarly, RIM has accumulated significant patent interests in recent years.

It is quite possible some licensees might end up paying more to implement open source Android than proprietary Windows Phone 7. According to analysts at Citigroup, Microsoft receives $5 from HTC for each Android handset HTC sells and has reportedly been asking Samsung for as much as $15 per Android phone. Apple's patent enforcement against Android is indirect and three-pronged including HTC, Motorola and Samsung. In a most recent development, an administrative law judge's initial ruling for the U.S. International Trade Commission found HTC in violation of two of Apple's patents. If the six-member ITC panel agrees with the judge's decision, which could happen by year-end, it could impose an embargo preventing the U.S. importation of some HTC smartphones.  This would be devastating for HTC because the U.S. is the fulcrum of the global smartphone market. HTC has said it will appeal, but a financial settlement might be the only way to prevent such a development given that the ITC cannot award damages. What support will Google provide and how much is it willing to spend in such an intervention? (Eric Schmidt, Google's executive chairman recently was asked if Google would foot HTC's legal bills in the case should HTC lose, Schmidt reportedly said: "We will make sure they don't lose, then.")

At a price of $4.5 billion, Google was recently outbid by the Rockstar Bidco consortium including Apple, EMC, Ericsson, Microsoft, RIM and Sony in its attempt to acquire 6,000 patents (i.e., $750,000 per patent) from bankrupt Nortel Networks. These patents might have provided a useful weapon for Google to defend its Android licensees. The prolific blogger and widely quoted Free Open Source Software proponent Florian Mueller was dismayed.  According to Fortune the day the results of the auction were announced on July 1 , Mueller wrote that "in light of Android's patent problems it's surprising that Google didn't outbid everyone else," and added "it could have afforded more than $4.5 billion but it doesn't appear to be truly committed to Android."

Double-down or quit

Developing, supplying and supporting a smartphone platform both technically and against IPR infringement challenges is very costly. Whereas Apple remains ever strong in smartphones, all competing mobile platform suppliers including Google, Microsoft, RIM and others are far from secure for various reasons. Financial returns to Google from smartphones are mostly indirect by extending its core search business into mobile. Google search is also very popular on platforms other than Android.  Google may have already neared the limits of what it can justify spending to develop and protect Android. Are this platform's stellar days--at least in terms of market share growth--over?

Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. WiseHarbor is publishing an annual update to its Extended Mobile Broadband Forecast in May 2011. The new forecast will include network equipment, devices and carrier services to 2025. Further details are available at: http://www.wiseharbor.com/forecast.html

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