War of Ecosystems: Is Amazon the Dark Horse?

Mobile phones have come a long way in the last 40 years when the first call was made on Motorola phone by Martin Cooper in 1973. Even at the turn of century, the mobile devices were primarily voice and SMS medium but today, as I write, the smartphone sales for the first time have exceeded the feature phone sales. Smartphones do much more than the simple voice and sms and according to a survey, today less than 10% of usage on phone is on voice. The emergence of smartphones is “The Important” reason for creation of ecosystems. There is an interesting war out there in the ecosystems for the race to supremacy. Initial bets have been placed by different players but how will it exactly play out in the future is still full of possibilities. This article tries to analyze the strengths & weaknesses of existing players and evaluate the possibility of emergence of Amazon as a strong ecosystem player in future.

What is an Ecosystem?

In the feature phone era, the relationship between mobile phone manufacturers, their vendors and the carriers was a simple supplier-vendor relationship. Mobile phone manufacturers would sell the phones to the carriers/end consumers and that was the end of the relationship. However, now with the emergence of mobile internet and applications, there are symbiotic relationships emerging between vendors, mobile phone manufacturers, developers, content owners, advertisement networks and carriers with the mobile operating system/platform at the center. This tightly interconnected group is often called the Mobile Ecosystem. The major ecosystems are Android and Apple (iOS) with Windows and BB10 attempting to break their dominance. So far the ecosystem have evolved in such a way that it is the winner who takes it all and is reflected in the profit pool of mobile handset vendors where only Samsung and Apple are making profits. With convergence, the ecosystems are getting extended to non-mobility products like Smart TV, connect appliances, etc. and hence the Mobile Ecosystems are transforming into just the Ecosystems.

War of Ecosystems

In earlier days, the handsets were sold only on the strength of the hardware specifications (“what the handset can do”) but today user interfaces and applications (“what you can do with the handset”) are becoming the more important criteria for handset purchase. Consumers today buy into ecosystems and not devices. Both Android and iOS have over 500,000 applications available on their networks and hence have emerged as the platform of choice for the consumers. This has resulted in both Android and iOS emerging as financial magnets with almost all developers and brands investing heavily in both the ecosystems. Therefore, for any challenger ecosystem, it is important to attain critical mass as soon as possible which today comes from applications.

In my opinion, the ecosystem of tomorrow would not only be OS centric and there is a possibility of emergence of content centric ecosystem. I see the war of ecosystems emerging as a four corner war in the future:

1. Android (OS Centric): It is the leader today and has the momentum and investment to remain a credible player for a long time. Multiple handset vendors have stake in Android’s success which would ensure its relevance. However, the big threats are fragmentation, security and legal issues.

2. iOS (OS Centric): Apple is the pioneer of ecosystem and was the one that stared the application store. Its USP is user interface and stringent quality controls. Since Apple is the only handset vendor on iOS and due to quality controls, unlike Android, the security risks are negligible but the long term growth is dependent on Apple’s market performance.

3. Windows Phone/BB10/Any other (OS Centric): The race for 3rd OS based ecosystem is still open though at the moment Windows seems to have an head start. There are multiple operating systems in the making (Firefox, Ubuntu, Sailfish, etc.) but it is unlikely that any new operating system will gain prominence unless backed by player with strong financials. BB10 is promising but Blackberry lacks the cash reserve to build the new ecosystem.

4. Amazon (Content Centric): For the success of any ecosystem, hardware, operating system and  content are the three pivotal pillars. Amazon has over the years emerged as the strongest player in terms of content (music, video,etc.) and services (Cloud, advertising, etc.). This should help Amazon emerge as a new ecosystem which can provide a compelling value proposition and a strong alternative to Android. The table below shows the extent to which Amazon is competitive in each of the required areas for a credible ecosystem:

It is very clear from the above table that Amazon is a long term player which is building business that may right now seem diverse but are likely to come together in the form of an ecosystem. Amazon has acquired companies like UpNext and has tied up with various content owners which gives it immense competitive edge. The biggest advantage Amazon would have over other ecosystems would be its strength in content and commerce. Amazon has been testing the waters with launch of tablets. I would not be surprised if it decides to do its own smartphone or license its platform to other smartphone vendors to further its ambition of becoming a major ecosystem player. What could limit the success of Amazon is its limited availability of cash reserves (as compared to Apple or Microsoft) but then Amazon is always in for a long haul.

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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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