The smartphone value system

Benedict Evans in his post Unbundling innovation: Samsung, PCs and China compared the smartphone industry to the PC industry where value began to be hollowed out and the market became commoditised.

Evans claims that this is already happening to Samsung. Part of the challenge is that so much of the design of the hardware layer in phones comes from reference designs by component manufacturers like Qualcomm and reference design work done by manufacturers like Foxconn. Globalisation outsourced hardware design innovation, a plus side of this is that there is a whole eco-system in southern China that can support anyone who wants to make a branded handset building on experience gained working with major technology brands.

As he quite rightly points out some businesses are looking to take control of their business by building beyond hardware and into the service stack.

A number of manufacturers put their own UI over Android like HTC’s Sense UI and Huawei’s Emotion UI. Whilst these contributed to a handset personality, they didn’t provide differentiation. Facebook even tried to get in on the act with Facebook Home, but the user experience left something to be desired according to reviewers.

Manufacturers tried to add applications in their phones, which competed with Google’s own application stack. At the present time, no Android manufacturer has come up with a killer application for their brand of phone, mainly because they replicated Google’s efforts and with the exception of Samsung, the application wouldn’t be sufficiently ubiquitous – particularly if it was some sort of communications platform like say Whatsapp.

Meanwhile, Google hasn’t been sitting quietly on the sidelines but has been using its power within the community to exasperate commoditisation by combatting manufacturers efforts at software customisation. This process has been rolled further into the Android efforts with strict guidance on Android Wear devices. All of this may feel quite similar to Microsoft Windows around about the time of their dispute with Netscape.
The ultimate budget phone shootout: Xiaomi Redmi vs Huawei Honor 3C vs Motorola G.
Deeper innovation requires a fork in the Android OS and a break with some if not all of the services. This break has been forced on Chinese manufacturers anyway as consumers wouldn’t be able to access Google’s maps, email or search. Which is the reason why Xiaomi’s MIUI, Jolla’s Sailfish OS and CyanogenMod have an opportunity to work with phone manufacturers.
Charles' Jolla phone
However, the ironic aspect of this is that any of these platforms became too successful they would wield as much power as Google does at the moment.

A sweet spot for hardware manufacturers would be a hetreogenuous OS environment, all of which will run Android-compliant applications. In order for this to work, you would need an equivalent of POSIX compliance for Unix-type operating systems for these mobile OS’ and a way of ensuring that platform innovation didn’t ossify either the OS or the internet services supporting it.

Where does Apple fit into all this?
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Could the HTC One have been built without manufacturers having invested in milling machines after the introduction of the iPhone 5 aluminium monocoque chassis? Apple’s process innovations / popularisation of production techniques opens up opportunities for the wider Android community. This is because of Apple’s focus on materials innovation as well full integration of the services and software stack.

This lends weight to a viewpoint that Apple has in some respects has become a ‘fashion brand’ as one of my colleagues put it, think a watchmaker rather than say a fashion house like Louis Vuitton and the analogy has a certain amount of merit. This also implies that when thinking about the iPhone the value decision lifts itself out of the economic rational actor. However there are also shifting costs. You don’t buy a DSLR camera, you buy into a system since the camera needs lens in order to work. Applications (particularly paid for applications) play a similar role, as do services.  There is an inherent switching cost away from iPhone, this is lower when switching platform from Andrioid to iPhone and practically none existent for many users upgrading their Android handsets.

So in many respects Apple sits apart from this in the same way that the Mac sat within, yet apart from the PC industry.

More information
Unbundling innovation: Samsung, PCs and China
Android and differentiation | renaissance chambara
Messaging’s middleware moment | renaissance chambara
The folly of technology co-marketing budgets | renaissance chambara
HTC One – gsmarena