Five Reasons why Handset Vendors should not adopt Android

(This article is written in personal capacity and does not reflect the views of my employer)

Android is the fastest growing smartphone platform and has attracted a lot of interest from the consumers as well as handset vendors. Last week Canalys estimated that in Q4-10, Android become the leader in the smartphones. Many vendors ranging from Samsung, LG, Sony Ericsson to Chinese vendors have adopted Android as it gives them the advantage in terms of time to market and frees up the resources to focus on the hardware. However, in the long term, this may backfire due to the following reasons:

1. Commoditization – Vendors who adopt Android find it very hard to differentiate themselves from other vendors using Android. Hardware and design are the only differentiators which are not sustainable in the longer term. This would lead to the mobile industry emulating the PC industry where consumers are very much brand brand agnostic. Also, with multiple vendors adopting Android and lack of differentiation, the margins are expected to be crushed significantly and may reach 7-8% as in the PC industry

2. Shorter Life Cycle – Due to waning differentiation, the product life cycle gets shortened for Android based handset vendors. Imagine the situation where HTC launches an Android based phone with certain features and within a month Motorola launches a better looking phone with similar or better features on Android. The sale of HTC handset would drop significantly within a month and the same would happen to Motorola if there is some other vendor that launches another model with better features leading to shortening of product life cycles. With multiple launches in a month by different vendors on Android, this situation is very real. Earlier most models would sell longer as the different operating systems provided distinct differentiation in combination with vendor brand, features, etc. Shortening life cycles would mean that the vendors will not be able to cover costs on many models.

3. Low Retention – A lot of consumers buy the same brand when they change their handsets as they are used to a certain user interface (UI) and experience. This had lead to a higher customer loyalty for mobile handset players than other similar industries. However, with many brands offering similar experience, there would be no barrier for a consumer to shift from Samsung to a little known Chinese vendor as the functionality and experience is likely to be the same.

4. Services and Applications – Google provides and control most of the services like messaging, navigation etc. on any Android device. This gives an advantage to the vendor in terms of time to market and service availability in case the vendor does not have the services. However, for vendors who have a services portfolio or have high gross margin ambitions should not adopt Android. Any vendor adopting Android should kiss good bye to its services play ambition. Apple is able to command a good gross margin because it controls the experience and services. Apple is a platform and has developed an ecosystem around its platform. The mobile game has now shifted to ecosystem and services and it is imperative for the vendors not to outsource this to any other company. Google has a very rigid stand on the usage of services and applications on Android and unless it is ready to re-examine it, it may not be in the best interest of the vendors to adopt Android.

5. Fragmentation – Google is known to introduce the new versions of Android very fast which is leading to a lot of fragmentation issues for the vendors. The control of application market place is with Google and hence there is no way the vendor can port the applications across the models if they are different versions of Android. In some cases, vendors like Motorola and HTC have a filmware on top Android but they are finding it difficult to keep pace with the fast changing Android versions.

Most of the vendors of aware of the problems with Android and therefore have some kind of alternate operating system strategy in place. Samsung is investing in Bada, HTC plans to continue to support multiple OS like BREW and Windows 7 while Motorola recently bought Azingo to reduce its reliance on Android. However, if the Android juggernaut continues to roll, the vendors would find it very hard to get consumer acceptance for other operating systems. There are benefits of Android ecosystem that cannot be ignored like the strong services and application support which really helps the vendors in bridging the services gaps that they may have. However, the adoption of Android should be a well thought out decision rather than to achieve short term objectives and the vendors should always have an alternate operating strategy in place.

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Disclaimer: The views expressed in this article are my personal views and do not reflect the views of my employer.

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