Mobile Industry Strikes Back At Google And Apple

 Google chief executive Eric Schmidt managed to snag a cherished slot as a keynote speaker at this year’s Mobile World Congress,  the industry’s biggest annual bash.   But announcements made at the show’s opening February 15 illustrate how the mobile sector is struggling to grab the spotlight back from  Apple and Google.

The Mobile World Congress kicked off with the launch by gear maker Ericsson of an “eStore”, a marketplace which will allow operators to set-up and offer mobile phone users an application store. The eStore will have 30,000 applications to start, which will be downloadable to any mobile phone. Ericsson’s move and recent announcements from Alcatel-Lucent, underscore how equipment providers are trying to help operators launch new services that will help them better leverage investments in mobile broadband networks so that they don’t become dumb pipes and allow the likes of Google to make off with the bulk of  revenues from mobile advertising and data services.

Separately,  24 operators – including China Mobile, Vodafone, the U.S.’s AT&T and Verizon Wireless, Spain’s Telefonica, France’s Orange,  India’s Bharti-Airtel, Russia’s Vimpelcom and Japan’s NTT DoCoMo  – said Feb.15 that have formed an alliance to build an open platform that delivers applications to all mobile phone users. Operators in the alliance, blandly named the Wholesale Applications Community,  represent some three billion customers. Device manufacturers  LG Electronics, Samsung and Sony Ericsson  also said they support the initiative.

Until now the mobile marketplace has been fragmented, in terms of both technology platforms and individual operators opening their own app stores. With the industry in astate of flux, developers have flocked to Apple’s app store, creating more than 100,000 applications while largely ignoring the rest.

 The Wholesale Applications Community’s stated goal is to tip the balance by  establishing a simple route to market for developers to deliver  applications and services to a much wider possible base of customers. Analysts reacted cautiously to the news. Another such alliance called Joint Innovation Lab or JIL, containing four of the same members, Vodafone, China Mobile, Verizon Wireless and Softbank Mobile, already exists and the track record of operator consortiums has not been particularly good.

 The main challenge is the branding and marketing power of Apple,  which “has built a nice and very well functioning castle with a direct bridge to consumers,” says Saverio Romeo, a Frost & Sullivan industry  analyst.  “If the rest of the industry  just keeps talking about application stores and trying to walk on Apple’s bridge, they will always find Steve Jobs at the door of the castle.”

Similarly it won’t be easy to put the brakes on Google, the company that many believe now poses the biggest challenge  to date to the global industry, threatening to turn traditional industry players into bit players and bit pipes. Some analysts say they now see Google as a bigger threat to operators than Microsoft and Nokia. By running as much traffic through its services as possible, Google has been able to categorize the Internet, giving it the ability to  service the most appropriate and valuable advertising to its users. And it has made it clear that it intends to do the same in the mobile space. 

In the last few months alone the search engine giant  has acquired AdMob, a provider of mobile ad technologies; launched its own branded mobile phone,  Nexus One, a touchtone smart phone that runs on the company’s operating system and is sold through a Google-operated retail Web site; and rolled out a new social networking platform Buzz, which is built into Gmail and Google Chat, giving the service, which will also be available on mobile phones, a potential customer base of 170 million users from day one. Although Finland’s Nokia remains the number one handset maker, “Google is rapidly become the most serious threat to Nokia’s ability to generate value through software and services,” says Richard Windsor, a global technology specialist in the London office of Nomura Securities.

Google’s mobile operating system, first shown at the Mobile World Congress two years ago, is clearly gathering steam. “This is  the year of Android,” says Neil Mawston, director of consultancy Strategy Analytics’s global wireless division. So far Android phones have captured only a sliver of the market, whereas Apple has grabbed 14% in just three years. But Google, unlike Apple, is planning to strike at the heart of the phone business – and Nokia’s prime playing ground – by going after the market for lower priced phones  in both the developed and developing world.  On display in Barcelona is a Android platform, developed by ST-Ericsson, which manfacturers could use to produce smartphones with a wholesale price of less than €100. The platform, which is scheduled to be delivered by mid-year, promises to signficantly broaden the smartphone segement, making advaced and customizable handsets affordable for the mass market.

The stakes are high. In the past decade the number of mobile subscriptions worldwide has grown sixfold to 4.6 billion and Ericsson chief executive Hans Vestburg predicted at the opening of the Mobile World Congress that there will be three  billion new mobile broadband subscriptions in the next five years.

Ericsson forecasts that by 2015 mobile PC subscriptions will have grown six times and the traffic generated will grow more than 50 times compared with the end of 2009,”Vestberg said at a press conference on the opening day of the show. In the same period, the company said it expects smart phone devices to grow four times and the traffic they generate to expand by a factor of 25.

Trouble is the world’s operators are not reaping the hoped-for benefits.  The increased competition over mobile broadband customers has in many markets resulted in mobile broadband prices plummeting to a level where customers can acquire a mobile broadband connection at the same price -or even cheaper – than a traditional broadband connection. In countries where mobile broadband has the highest penetration the price of mobile broadband connections are sometimes lower than the price it costs the operator to produce, market and sell the broadband service, says Strand Consult, a mobile consultancy based in Denmark.

What’s more, the services operators hoped to sell on top of the basic subscriptions are not resonating with consumers. A pan-European survey published Feb. 9 by British mobile consultancy CCS Insight found that mobile network operators and services such as Nokia’s Ovi are losing the battle to define the mobile Internet experience, despite the huge sums they’re pouring into sites that compete with the familiar  Web names.

The survey, conducted in December among a sample of 5,000 mobile phone owners aged 16 to 35 in France, Germany, Italy, Spain and the United Kingdom, found that over 60% of mobile Internet users  are ignoring specifically tailored portals created by mobile operators as well as  Nokia’s Ovi. It is little wonder then that there is a huge focus on applications and a concerted effort to attract the developer community at this year’s Mobile World Congress.

Not to be outdone, device makers, who are also facing challenges from Apple and Google, opened the show with developer -focused announcements of their own. Samsung launched a phone at the Congress  based on a proprietary Linux platform called Bada. Samsung says it will make the applications environment for Bada open to developers in order to make it easier for them to develop applications for Samsung phones. Sony Ericsson made a similar move, announcing on the eve of the Congress a new application environment called Creations that will run across its handset range.   Analysts say it is not clear that either handset manufacturer will attract significant developer interest.

Of course, operators and handset makers are hedging their bets by attempting to work with Google. Huawei and Sony Ericsson are among those launching Android phones at the Mobile World Congress.  These phones  will have to compete in the marketplace with Google’s own Nexus One phone. Google has the upper hand. Without Google Apps, Android devices lose a key selling point, which hands most of the power of the platform to Google, despite the fact that the underlying operating system is free and open source, says Nomura Securities’ Windsor. He put it this way in a recent research note: “If the value of the platform is to be found in the natively coded Google applications then it is Google who will control the platform as the popularity of the applications will force the vendors simply to follow, competing with each other only in hardware.”

For its part Vodafone separately announced Feb. 15 the availability of a “Vodafone People” application for Android phones.  The Vodafone People application, part of a suite of Vodafone 360 services, the global operator’s name for its mobile Internet services, allows users to automatically and wirelessly synch all of their contacts from their phone and aggregate social network feeds, chat and email accounts into one single, connected address book.  Vodafone expects Android phone users to download the application from Google Marketplace and then register with Vodafone 360.

That may seem like a risky strategy but operators need to spread their bets in order to regain control of their subscribers, says Paolo Pescatore, director of operator strategy at consultancy CCS Insight.  Vodafone, for example, is supporting Symbian, iPhone and Android operating systems. “They realize there is a choice out there so they are embracing the whole ecosystem,” says Pescatore.”The bottom line for a company like Vodafone is they are still at an experimental stage and it is not an easy feat, it is increasingly competitive and there is a real need to differentiate.”

If the industry doesn’t move fast enough to differentiate their offerings from the likes of Apple and Google it may find itself not only sharing a stage in Barcelona but an increasingly larger share of the mobile sector’s revenues.

 

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