PERSPEC TIVES

The mobile handset market is in turmoil—again. Google might want its Android OS to be viewed as friendly and fun, but that’s not how the rest of the industry sees it.

Trust Steve Jobs’ instinct: He usually only attacks the technologies he’s most concerned about. In October 2010, he called Google’s creation, “very, very fragmented,” saying it presents developers with a “daunting challenge.” Fair point—but major handset companies like HTC, Motorola, Sony Ericsson, ZTE, LG, and Samsung, plus new entrants like Huawei, Acer, and Dell, are rising to the challenge. They’re fi lling the stores with Android-based handsets, and retailers are marketing the OS as this season’s “must-have” feature.

Android—Friend or Foe?

PER SPEC TIVE S

Android—Friend or Foe?

©2010 PRTM

To get some facts into the debate, PRTM recently benchmarked 57 Android-based hand-sets from 12 companies. We looked at the formal Android release date, the launch date of the phone, and the chipset platform. Android is indeed a game changer—here are three of our research highlights:

The average cycle time for handsets fi rst sold in 2008 based on Qualcomm’s QSD8250 chipset and Android’s Donut 1.6 release was a brief 8 months. By late 2009, the average cycle time for handsets based on Qual-comm’s MSM7227 chipset and Android’s Eclair 2.1 release had nearly halved, down to 4.5 months. This is “warp speed” for complex smartphones.

Next, Android has removed speed as a source of advantage. In the past, fast to market vendors could gain themselves six to nine months of highly profi table advantage. But now vendor cycle times are virtually iden-tical—they can all deliver handsets based on the latest Android release within 16–20 weeks.

Third, most of the handsets—77% of the sample—are based on Qualcomm chipsets. Seasoned observers may fi nd this ominous. Over the years, Microsoft and Intel have captured far more value than the makers of the PCs. Will “Quadroid” become the new Wintel?

Taken together, these three fi ndings have signifi cant implications. In 2007, Android did indeed look like an easy, inexpensive way to chal-lenge the extraordinary success of Apple and its iOS-iPhone-iTunes combination. But the success of the venture has unleashed a tiger. And, three years on, the handset companies are starting to look like its lunch.

Our perspective on what could happen next goes something like this:

The leveling of the time to market playing fi eld, the rush of new market entrants, and

the emergence of “Quadroid” as the dominant offering will drive down gross margins for handset companies to dramatic new lows—close to the 8–10% range endured by major PC manufacturers like Acer or Lenovo. Some handset companies may not survive.

Handset developers must urgently seek new sources of differentiation to offset the huge pressure on margins. Their search will need to consider their industrial designs, user experience, the richness of available applica-tions, and new business models. In short, they’ll need to act more like Apple while staying different from Apple.

Handset vendors that do not want to be entirely subordinated to Google will have to decide which other operating systems could be their best dual-source alternative. Margin pressure means fewer development platforms, but, taken too far, may result in unbalanced supply with equally unattractive implications for margin.

Consumer demand will become more vola-tile. Faced with many similar products based on the same core technologies, fashion and viral enthusiasms will drive volume highs for successful products. Meanwhile good-but-not-great products will languish, calling for exceptional agility in vendors’ manufac-turing and supply chains.

Ultimately, as businesses reconsider their operational strategies, they should know that staying neutral is not an option. Tough choices are required—and they’ll need to decide if Android is truly a vendor’s friend or foe.

For further information on PRTM’s Android benchmark, please contact Principal David van Oss (dvanoss@prtm.com), Director Huw Andrews (handrews@prtm.com), or Manager Juha Seppa (jseppa@prtm.com) at PRTM. The authors also wish to thank Xi Yao for her research.

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