I'm not keen to get into yet another "Android copied iOS" spat. The courts & market will decide.
In the end, for the various players, the ultimate burning issue is: where does the margin lie, and how do we get some of it? Fortunately, the market still has many players, each playing in various circles/segments, and the circles overlap but are not coterminous.
What makes the devices space to interesting is it's a new layer on the various segments: hardware devices, operating systems, apps, networks, and ecosystems.
Apple uniquely plays in 3 of the 5 (OS, apps, ecosystems), and leverages that to great effect, and margin. They use a low-cost manufacturer in the Far East (Hon Hai Precision Industry Company), and do deals with networks, so the bulk of margin in those segments go there and not to Apple. They rake off margin from apps delivered exclusively through their ecosystem, and some services. The ecosystem is closed and promotes lock-in, which helps to stabilise revenue and margin curves. They have one brand, which encompasses all their segments.
Samsung is a handset manufacturer and is utterly agnostic about ecosystems, operating systems, apps, and networks. They go with what shifts volume, because they almost exclusively make their money off the manufacturing line. Tweaking Android is for them an expense and produces no margin. They can outmanufacture almost anyone else, and so will always win any margin war provided they're delivering passably in the network, OS, apps and ecosystems de jour. They also have one brand: Samsung, and it's tightly tied to the devices and not the OS, apps, networks, or ecosystem (which are variables for them).
Microsoft is historically an OS (and apps, sort of) maker and has taken its margin only there. Three of other segments (hardware, networks, and ecosystem) are traditionally beyond their reach (though strong historical relationships exist) and apps are largely unexploited and unmonetised on devices. They're trying to change that, by pushing into apps and ecosystem, and might even have to get into hardware (Surface is a harbinger?). The brand they're leveraging is Windows and Office, which are historically PC properties, with the device being mere delivery surface. They know that's not enough, because Apple has shown that much lies in getting the mix right.
Nokia were traditionally a player in hardware, OS, apps, and ecosystems, with strong network relationships. As the market changed they fiddled about with Open Symbian and other internal/proprietary/pseudo-open stuff. They got caught up in internal religious wars and defocused, and their traditional market (revenue and margin) nearly evaporated in the exploding smart/devices segment.
The challenge to Nokia is and will remain profound for a while yet.
With a First World cost-base, they could never outmanufacture the Far East chaebols and zaibatsus (like Samsung) and the emerging China-based megafactories. Nokia-owned mfg would be a margin toilet and certain suicide (though new tech like robot mfg can change it a decade or so). Trying to differentiate on handset quality alone simply dumps you back into the hardware manufacturing margin structure. Besides, Far East quality is already superb and always improving, and in any case all your competitors' stuff is made in the same/similar factories. The devices business needs margin and volume to survive beyond one ever-shorter technology generation. Nokia's fate with Android would in all probability be the same as HTC's (quality hardware, unfocused and unaligned OS/apps/ecosystem = ever-diminishing margin).
So how then to differentiate and survive? The only cards left for Nokia are:
- OS. Four options: (1) RYO. This had already failed. (2) Android. Doing the same as Samsung/others would remove the most immediate user-experience differentiation and thus over time come to nothing, with no realiseable leverage for margin. (3) RIM/Blackberry. For various reasons largely inside Blackberry, a non-starter with doubtful future. (4) Other outside OS. Many exist, but the only one with enough backing/resource and thus chance of some success over time is Microsoft's WP. It is new and faces its own problems, but MSFT are in the for the long haul and cannot afford to walk away from that space, so a tie-up with a committed OS alternative from MSFT makes the most long-term sense. Risky for sure, but all the other options are even riskier. And Android is a clear no-no for reasons outlined above.
- Networks. No chance, as the networks are and will always be device agnostic and other-brand antagonistic.
- Ecosystem and Apps. Nokia can leverage other existing properties like maps/navigation and music to quickly construct an ecosystem with the OS supplier, and develop apps that differentiate. Given Android's architecture, a Nokia+Android ecosystem would simply add the same value to the competition, so clearly an idiot move.
Like many people, I have always liked some Nokia devices. But cool devices alone aren't enough anymore. Like almost everyone else, my devices must talk to my daily business systems, which are largely Windows-based ~ Office, Exchange, cloud storage, messaging (the usual, plus Skype and Lync), sync contacts, calendars and other assorted stuff, and more and more cloud/SaaS stuff such as accounting, remote management and monitoring, security, etc. And they must delivery my leisure media.
In other words, the smarter they become, the more critical the off-board elements become, driving you into alignments and alliances shaped not only by the underlying technology (which becomes standardised and universalised over time) but by ecology and culture.
Ultimately, the Battle for the Universe is between Apple, Google, and Microsoft. The hot war now is between Apple and Google, with Microsoft still emerging from its slumbers and reorg. All three are empires, but they have different philosophies, laws, cultures, and customs. And different ecosystems. Oversimplified, of course: Apple is The Total Kingdom, closed, inert, imperialistic and deeply narcissistic. On a personal level, I find Apple's fanboi-pandering narcissism quite off-putting. But they make great stuff. Google is The New Kingdom, a rich twenty-something with a finger in every pie and an eye on everything you do, imperialistic, seductive, unsure of where it ends and the world begins, aiming to be all things to all people. Microsoft is The Olde Kingdom, once brash, super-aggressive, overweeningly ambitious and domineering, but now humbled. It's very focused on 2020, and has the resources to re-engineer the company and the tech until then. But I digress.
One of the interesting challenges for Nokia is: where will they actually make their money? Hardware manufacturing margins are super-slender and cannot sustain a Western cost base; networks are out; OS is a cost (largely), so that leaves only apps and ecosystem. How are they going to monetise the apps and ecosystem? Or do they plan to use the apps and ecosystem to drive device sales and make their money by selling their branded devices (with manufacturing outsourced a la Apple and Microsoft) in the higher-margin developed countries? What happens if/when Microsoft does phones (Surface is a toe in the water)? Merger/absorption? Or can it carve out a space under Microsoft's imperium and sally forth to conquer turf from the other two?
In the meantime, we get GREAT devices from all of them. I love that. I'd hate for there to ever be a clear winner. I'm a capitalist, after all. And a technology junky.
. Nah. I need a new phone.
