But Android faces big problems, tight deadline, says report
Google Android faces big problems, and a tight deadline, says new report
A new study says Google faces big challenges in making its Android handset software stack a success.
But the biggest challenge may simply be the size and sweep of Google’s ambition: Android is nothing less than an attempt to reshape the essential relationships, the very character, of the mobile industry, according to the authors of “Google Android and the Wireless Ecosystem: Will the Mobile Future be Google’s Future?”
Android, announced in November, is an effort to crystallize a new set of relationships among network operators, content providers, platform vendors and handset makers, replacing the relationships that today define an inherently dysfunctional industry, according to the study’s chief author, Philip Sugai.
Google’s bet is that as the mobile Internet becomes more attractive, it will reap advertising revenues from mobile search and search-based services.
To achieve this ambitious goal, Sugai says, Google has to enlist the enthusiastic cooperation of these groups, convincing them that the success of the Android ecosystem will directly benefit all of them to the degree that they cooperate in making that ecosystem successful. The creation of the Android-focused Open Handset Alliance, now with over 30 members, is a first step in that process.
One especially intriguing observation is Sugai’s speculation on the motive for Google’s decision to bid for a spectrum license in the upcoming 700MHz spectrum auction. “We predict that Google will succeed in acquiring a spectrum license, and to use this to ‘convince’ [wireless] operators of the value of mobile innovation, either through partnerships or direct competition.”
Specific challenges facing Google
There are specific challenges Google must overcome to reshape the mobile ecosystem. Some are basic but essential, like enlisting the enthusiasm of, and supporting, Linux mobile developers, winning their support of a common open software stack for a mobile phone operating system and development environment. Others are more systemic: coming up with a viable model to compensate content developers for their work, and convincing wireless network operators to share revenues with these developers.
And Google’s time is limited, according to the study. “If Google fails [to win Linux developer backing] by mid-2008, Android will never achieve the critical mass necessary to compete with Windows Mobile and Symbian [platforms],” the report concludes.
The 55-page analysis was released this week, co-published by Mind Commerce, a technology research and consulting firm, and the Mobile Consumer Lab at the International University of Japan (IUJ). A summary of key findings is available, but the report itself has to be purchased via the Mind Commerce site. Sugai is the principal author, with contributions by a handful of his graduate students.
The report describes the “mobile value system” that dominates most markets today, including the United States, as one in which the handset maker plays the central role. With the network operator and content provider, all three see the phone subscriber as “their” customer, and all three focus on extracting the maximum value from that subscriber. For example, “Network operators have become focused on their own revenue gains, significantly limiting the amount of revenues shared back with content providers, which has seriously undermined innovation [in mobile content and services],” according to the report.
Creating a true ‘ecosystem’ – Japan’s model
The concept of a true ecosystem, in which the roles of the various members remain in collaborative balance to achieve mutual benefit by the overall health of the system, is alien to this traditional mobile value system.
But there is one example of a viable mobile ecosystem: in Japan, brought into being with the February 1999 launch of NTT DoCoMo’s i-mode service. The report cites data to show that Japanese mobile subscribers are just 3% of the world’s total subscriber base but they account for 40% of the world’s total global data revenues.
In the Japanese ecosystem, the network operator plays the central role and has the main relationship with the subscriber. “New Handset sales, customer service and support, upgrades, etc. are all conducted via the shops managed by Network Operators,” the report notes. “In Japan, although handset manufacturer churn rates are quite high, network churn rates remain extremely low (less than 5% even after Mobile Number Portability was launched).”
As the network operator sits at the middle of this system, customers conduct all of their mobile activities in partnership with the network operator. New handset sales, customer service and support, upgrades, etc., are all conducted via the shops of managed by network operators. Recent research conducted by the Mobile Consumer Lab at IUJ supports such findings, showing that mobile consumers feel far more loyal to their network operators than to the handset manufacturers whose phones they use.
But to fully develop that relationship, the network operator oversees relationships with the other members of the ecosystem, to their mutual benefit. For example, the operators pay as much as 50% of the R&D costs for new handsets by the manufacturers, and handle the costs of marketing and selling the handsets. For content makers, the operator offers a “walled garden” for platform-specific content and services by approved content providers, who benefit from a simple payment processing portal and reap over 90% of the operator’s subscription revenues, according to Sugai’s analysis. For platform vendors, the operator dictates software standards and can enforce requirements that devices and services be able to support these standards, such as Java or Brew.
Android and the Open Handset Alliance (OHA) are Google’s attempt to adapt and adopt the Japanese model, according to the study. In the OHA ecosystem, Android occupies the central role: creating a “common framework within which all industry players must function.” In this model, Google in effect cedes “ownership” of the subscribers acting instead to optimize interactions among the ecosystem members.
As the ecosystem becomes more efficient and more attractive to subscribers, Google will benefit from a stream of advertising revenue tied to new and emerging mobile search services.
Formidable rivals
But Google and its Open Handset Alliance partners aren’t the only ones betting big on the mobile phone market. Rivals include, besides Microsoft and Symbian, RIM, several Linux platform providers, Apple, Palm and others. All have their own ecosystem models, all very different from the one Google is trying to create, according to the report. Microsoft and Symbian, for example, dominate today’s handsets and have a combined total of 26,000 third-party applications, yet they are simply partners in the existing set of mobile industry relationships.
The main Linux rival, according to Sugai, is MonteVista‘s mobile platform, which appears in over 90% of the Linux smart-phone-class of devices shipped in 2007.
Next steps for Google and OHA
The report outlines several developments that will be needed for Android’s success and the reshaping of the mobile ecosystem.
Some kind of mutually beneficial revenue-sharing model will be essential to spark developer commitment to and innovation for Android, according to Sugai.
Network operators have the “most critical role” and it’s one they’re not accustomed to: being an enabler for the other ecosystem partners. The Japanese carriers, notes Sugai, ensured that all data services worked as promised from the start, built easy-to-understand pricing plans, avoiding hidden costs to subscribers, and created a centralized revenue collection and distribution system that benefited content providers.
Google and OHA have the potential to make mobile networks an authentic Internet experience, with services and applications uniquely optimized for handsets, wireless nets and mobile subscribers. One example cited in the report is Amazon.com Japan’s Scan Search service: it allows Japanese customers to use their mobile phone camera to “scan” the barcode of a book in a retail store, and then instantly retrieve Amazon’s competitive online price offer.
Users focus on the handset and its capabilities as the primary interface to the network of services. “Google must develop compelling incentives to convince the larger Handset Manufacturers to focus upon and innovate using Android,” the report says.
The real growth area for the ecosystem partners lies not in revenues from wireless minutes but in so-called “off network” offerings, such as mobile payments. According to the report, Japanese network operators were quick to realize this and exploit it: both NTT DoCoMo and KDDI, for example, are buying controlling stakes in banking and credit card service providers, to reap a portion of online payment transaction fees. Google needs to convince operators that a similar prospect awaits in a new, healthy mobile ecosystem created around Android.
