Android OS Vendors Face Differentiation Challenges
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A snapshot of the status of Android uptake and the importance of Android smartphones to mobile operators
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Android OS Vendors Face Differentiation Challenges
- 1. Analysing the current & future impact of Android Thomas Wehmeier Principal Analyst
- 2. The smartphone market is booming… 14/12/2010 www.informatm.com ©Confidential 2
- 3. ….and operators simply can’t get enough of them “Getting the right device in users’ hands has become the single biggest revenue driver for today’s mobile operators. Where once getting users to migrate from 2G to 3G was seen as the important shift, today it is all about migrating users to smartphones”
- 4. Shareholders want to hear more… Rogers 2Q10 – Android = lower SAC than rivals: “We like [Android growth] a lot as the subsidies on the devices are generally lower [than for iPhones and BlackBerrys] on Android as well, so I think it holds promise to continue to drive down smartphone subsidies and improve our overall smartphone economics.” Verizon 2Q10 – Higher Android subsidies offset by increased value: “If we had one quarter where we had 3 million DROID net adds, there is probably going to be a little bit of an impact [on SAC], but I would take that impact because of what it's going to do ultimately for value and shareholder value.” TeliaSonera 2Q10 – Android growth is accelerating: “Android phones are picking up very good. So we are quite happy for that. And the iPhone is absolutely the biggest one, but the Android is picking up pretty fast.I think for us it’s not so important which terminal the users are using.”
- 6. Manufacturers are rushing out models to meet demand: unique Android smartphone model launches, 4Q08-3Q10 14/12/2010 www.informatm.com ©Confidential 6 Uncertainties on whether launches were 1Q10 or 2Q10 Please note: Data includes commercially-available unique smartphone models only
- 7. Android’s march around the world continues 14/12/2010 www.informatm.com ©Confidential 7 As of Sep 2010 More than 200 OpCos in 75+ markets with more operators and more markets joining each month
- 8. Android is not just about developed markets Selected emerging markets Android operators Etisalat Vivo Axiata Telenor Reliance China Mobile Tata Vodafone India ….the list goes on…. Vodacom South Africa advert, Sep 2010 14/12/2010 www.informatm.com ©Confidential 8 Maxis Malaysia advert, Sep 2010 TIM Brazil advert, Sep 2010
- 9. Operators now confident that users accept & value “Android” as a brand in its own right 14/12/2010 www.informatm.com ©Confidential 9
- 10. Android activations runrate scaling rapidly 14/12/2010 www.informatm.com ©Confidential 10 Activations doubled inside 75 days 20 May 2010: 100,000 activations per day 4 Aug 2010: 200,000+ activations per day 23 Jun 2010: 160,000 activations per day 14 Feb 2010: 60,000 activations per day 200,000 daily activations = annualised run-rate of 73 million Android likely to exit 2010 with a run-rate of 100+ million
- 11. Android moving through the tiers and seeking to redefine price-to-performance ratio 14/12/2010 www.informatm.com ©Confidential 11 Samsung Galaxy S $670 Price Google Nexus One $530 T-Mobile Pulse Mini ($150) Huawei IDEOS ($100+) Memory, screensize, camera quality, processor, screen resolution, touchscreen quality, speakers, etc Performance
- 12. Generic marketing under broad smartphone tag risks misleading user expectations 14/12/2010 www.informatm.com ©Confidential 12 Segmentation and choice or fragmentation as gulf in performance and experience expand? Operators should be wary of mismanaging user expectations through catch-all marketing Segmentation of choice or fragmentation of experience? Applying the budget tag will not successfully hide all the sins of bottom end smartphones (e.g. T-Mobile Pulse Mini) If the experience is not right, operators risk not capturing the upside data opportunity
- 13. Retail experience is key to smartphone uptake; Android unable to match iPhone experience yet Shift to differentiation on hardware-OS-UI integration (the “experience”) grows importance of hands-on buying process Online channel alone fails to meet user buying behaviour: look & feel for hardware, touch & play for software Replica dummy devices counter-intuitive since users have no opportunity to interact with UI and applications In-store expertise critical to ensure users walk away with right device first time (O2 Gurus etc) Apple Stores are the benchmark reference experience – Android struggles to replicate New-style Telenor services-oriented concept store 14/12/2010 www.informatm.com ©Confidential 13 Source: Telenor, Sep 2010
- 14. European operators are putting their weight behind Android and pushing devices heavily to customers 14/12/2010 www.informatm.com ©Confidential 14
- 15. Operators leveraging heavily on Android to reach new customer segments 14/12/2010 www.informatm.com ©Confidential 15 Vodafone 845 T-Mobile Mini Pulse Orange Boston Movistar Ivy
- 16. Case study: Vodafone’s own brand smartphone strategy Why build your own smartphone? Device pre-loaded with Vodafone-dictated UI & V360 services Continues move “upmarket” from origins in low-end prepaid devices Exert greater control over device Targeted at bottom rung of the smartphone ladder Designed to attract users that would otherwise incline towards purchasing a featurephone Drive penetration of data services and lift data uptake Cross-market availability for scale purposes Huawei-manufactured, Vodafone-branded 845 handset 14/12/2010 www.informatm.com ©Confidential 16 Vodafone-branded browser Vodafone email Vodafone music shop
- 17. But operators should beware that consumer attitudes to device experience are evolving… User tolerance of unjustified operator intrusions eroding Users wish to exert their own control over their smartphone experience and don’t like an artificially-mandated experience imposed Low acceptance threshold for operator-installed apps that add little perceived value Operators need to evolve their firmware update strategies accordingly Vodafone pilloried by users for Android firmware update, Aug 2010 14/12/2010 www.informatm.com ©Confidential 17
- 18. UK market analysis: Android openly pushed on the high street 14/12/2010 www.informatm.com ©Confidential 18 Major shop front promotions Android-only promotions Equal footing with iPhone
- 19. UK market analysis: charting the growing influence of Android Availability and choice of Android smartphones is expanding rapidly Android now accounts for over 25% of smartphones available in the UK 14/12/2010 www.informatm.com ©Confidential 19
- 20. UK market analysis: charting the growing influence of Android All operators in the UK market are ramping up Android portfolios Android is penetrating the prepaid segment (57% of the market) 14/12/2010 www.informatm.com ©Confidential 20
- 22. Motorola: Motorola has pinned its hopes ...on the success of its Android handsets, which has now become its primary smartphone development
- 23. Samsung: Android will represent over half of the company’s new smartphone models in 2010
- 24. Sony Ericsson: At present the company clearly sees Android as its main OS
- 25. LG: Of the 20 or so smartphone models that it will launch in 2010, “more than half” will run Android OS
- 26. ZTE: “Android is now clearly ZTE’s platform of choice”, Informa Telecoms & Media
- 27. Huawei: The first ODM to integrate Android with silicon (low end devices).Why device vendors like Android: It’s not Symbian (a platform on which Nokia holds a clear advantage) Open source Flexibility at UI level and features Operator and consumer demand A new market opportunity – current landgrab going on A flexible platform – relevant to a number of device types (smartphones, tablets) Modularity enables it to address different BoM levels An innovative platform – cost of innovation and platform momentum drivenGoogle However: device vendors need to ensure they can differentiate from their competitors.
- 29. OS version fragmentation inevitable, although rapid adoption of new version addressing concerns Rapid adoption of latest OS versions Success of recently-released phones Some phones still launched on older versions (e.g. Sony Ericsson on 1.6) Version number important for device features and application availability Android 2.1+ on around 70% of installed device base Source: developer.android.com
- 30. Applications choice on Android growing, but lags Apple by around 12 months 14/12/2010 www.informatm.com ©Confidential 25 Total application store submissions by platform, Sep 2010
- 31. Android dominated by free applications due to immature application payment strategy 14/12/2010 www.informatm.com ©Confidential 26 Users able to purchase applications in Android market limited to just 14 markets and developers only able to register to sell applications in 9 markets Android payments limited to Google Checkout (except in USA) currently Android missing out on developer community in key emerging markets (e.g. Argentina) Alternative payment methods will be critical to expansion of paid-for downloads Nokia sees a 13x uplift in downloads of paid-for applications once carrier billing is introduced
- 33. 1H2009: 5,000 titles and 3.5 million downloads
- 34. Traffic generated mainly from browsing internet (55%) of total traffic
- 36. 1H09: 65,000 applications titles, 800,000 downloads and US$200 million.
- 37. 40% of traffic generated by mobile internet browsing
- 39. Concluding remarks 14/12/2010 www.informatm.com ©Confidential 29 Operators are confident in pushing the Android brand directly to their consumers and attach value to marketing communications that leverage Android (even in the absence of a specific device) Operators feel more comfortable in their comprehension of the underlying motives behind Google's Android activities Operators are keen to establish viable alternatives to iPhone in the high-end segment and see Android as today's key platform for enabling a genuinely competitive landscape Operators are alarmed at some of the underlying economics of the “smartphonication” of the market and today believe that Android can bring data growth at better overall margins The (perceived) failure of the direct sales experiment with the Nexus One has arguably strengthened relations between operators and the Android ecosystem Carrier billing looks to be vital to growth of paid-for applications downloads on Android, especially in emerging markets
- 40. Thank you.Thomas Wehmeier | Principal Analyst+44 20 7017 5379thomas.wehmeier@informa.comtwitter.com/twehmeier
Notes de l'éditeur
- With sales of Android-based devices growing sharply as device manufacturers bring ever more new Android-based devices to the market, the profile of Android within the mobile industry has reached new levels. But many question marks remain. This presentation seeks to address the following questions are more: how many Androids devices are out there and is fragmentation really an issue? How do operators view Android? How are Android devices being pushed in different markets? How quickly will Android scale? How does the Android market compare to the Apple App Store? What do device OEMs think about Android?
- Before we dive into Android, let’s get some overall macro context. Smartphone sales are booming. More than 250million smartphones sold through this year. Nearly 5 million every week. One out of every 5 handsets sold in 2010 globally will be a smartphone. 36% growth in 2010 – pushing sales up beyond 340m in 2011. That expansion will continue next year with 30%+ growth in 2011 bouyed by the continued drops in ASP, the expansion of operators portfolios as smartphones diversify and reach new market segments. By 2015, we expect 4 out of 10 phones sold to be smartphonesBut global-level analysis belies distinct regional variationStrong regional variation. The world’s leading markets for smartphones are North America and Western Europe. In W Europe one in every two handsets being sold today is a smartphone. Within 5 years time, we believe that virtually every phone being sold in Western Europe will be a smartphone.
- The arrival of the iPhone and the service-strategies of others like Nokia, Samsung and RIM has caused many in the industry to debate the smartphone’s role in disintermediating the operator from the provision of services to end-users – to breaking the relationship with the customer. There’s also strong questioning from some about the upfront hit to profitability that operators take when they target heavy subsidies on these expensive devices. When when we look at the positive impact that smartphones are having on operators businesses it’s not hard to see just why operatOn the RHS on this slide are numbers recently reported by Telenor in Norway – they are seeing close to 60% ARPU uplift when a user migrates to a smartphone from a non-smartphone. Although this is a more aggressive example, in other markets operators have reported uplift in the order of 25-40%. Not only is there incremental revenue uplift, but operators also report that smartphone customers are more loyal meaning that more revenue per month, plus a longer eventual lifecycle gives huge gains in overall customer liPut simply, getting the right device in users’ hands has become the single biggest revenue driver for today’s mobile operators.
- What I wanted to pick up here was, at the high level, why Android is attracting so much positive sentiment from the operator community. These comments reflect a few lone voices from the hundreds of operators around the world, but in reality it’s fair to say they echo a chorus from within the operator community. What is interesting to note is that Android has attracted operators mindshare – not only within terminal procurement departments, but in terms of communications to shareholders. What investors are trying to understand is the underlying economics behind smartphone growth – how does smartphone adoption drive profitability. The increase in data ARPU is well understood, but what do the economics behind those numbers mean in terms of subsidies and SAC. Operators love Android and talk about it because they see it as being able to reduce the subsidy stranglehold of say iPhone. Out of Europe/Scandinavia, this comment from TeliaSonera is very intriguing – suggests that the platform is not the key issues, but much rather the overall positives of the smartphone industry as a whole -
- This refers only to commercially-available SMARTPHONE models only – there is of course a broad array of other form factors available (tablets – 20-25, e-readers – 3, netbooks – 1) Android backed by a wide range of different manufacturers – over 20 OEMs have brought devices to market already. Many other devices have been announced that will trickle through into markets during the coming months. Pace of growth is ramping up – sharp rise in device launches in 1H 2010 . We expect 3Q to be the largest Q yet in terms of unique device launches based on Android. Fully expect the number of commercial Androidsmartphone launches to have exceeded 100 before the year is out.
- At the same rate that new devices are coming to market expanding the portfolio of choice, so the number of operators pushing Android devices through their channels is growing. I saw word from a Google presentation last week where they cited numbers showing Android is now in 60 devices being sold by 59 operators in 49 countries. One of the interesting comments Google made was that they often only hear about a new device when it shows up being commercially available – I guess that’s open source for you! In any case, our analysts felt that was underestimating the spread of Android so we ended up doing a bottom-up analysis and looked at operators direct channels ourselves to see who was pushing Android and where. What we found was quite astonishing – we were able to record over 200 operators in more than 75 distinct markets – and this recorded only those devices being sold through official operator channels. Our research showed grey market availability of devices is equally lively – so there is Android usage going on all around the world. What is more, the number of ops/number of markets is growing with each month that passes.
- Of course, when you get to more than 200 ops/75 markets, you need to expand beyond the developed market. Where Apple has successfully grown sales of devices by expanding its operator distribution footprint, Android too is quickly following. Of particular note, is the speed with which Android has pushed into the emerging markets. The industry’s media unquestionably has a western/US bias and much Android reporting is concentrated on those issues, but we have analysts dotted all over the place – and they report back to us in London frequently on the growing visibility of Android in places such as Brazil, India and Africa.
- One of the most interesting shifts to have taken place in the past 12 months is to watch how Android has evolved as a consumer-facing brand. As little as 12 months ago Android was a meaningless term to your average mobile user and limited to some level of traction within the early adopter, but today it’s clear that Android is becoming not only a pervasive and well-understood concept, but one to which users increasingly attach value – they will now actively ask in store for Android. Anecdotally, we can see just how that has been reflected in operators’ marketing activities – here’s the Tele2 online storefront. What’s particularly interesting about Tele2 is that it’s not an operator targeted at the top-end of the market. It knows its proposition is built around value for money and affordability
- As quickly as Android is able to grow its operator partners, it is growing in scale.Unlike Apple, where it’s easy to come by numbers, Google is much more opaque about putting out top-level numbers for Android shipments. But what little it does disclose makes for very interesting reading. The key stat we see from Google relates to Android device activations – i.e. the number of people activating Google accounts from an Android phone – a figure that has been sporadically reported in recent months – as ever in this industry, as soon as numbers are worth shouting about they become a lot more transparent. What we can see is an impressive ramp – from 60,000 per days in February, the number grew to 100,000 per day by May and then doubled again inside 75 days by early August to reach 200k. Even if Android were to stand still at early August’s rate, it is still on an annualised run-rate of 73 million. But that 200k number will not stand still and it is entirely plausible that Android could exit the year 2010 with a daily run-rate of 300k per day, especially given an expected end-of-year seasonal bump – to reach an annualised run rate of over 100m per year. It also means that Android could be well on the way to surpassing Nokia’s leadership – it yesterday announced its activating devices at the rate of 260,000 per day.
- Just as important as the growth in the number of devices on Android is the spread of Android across device tiers. This is absolutely key to fulfilling the vision of bringing data-centric devices to the masses. One device or even 5 or 6 devices can never hope to address the entirety and variety of market demand. Perhaps the most interesting think to note is the impact that Android is having on redefining the price to performance ratio. As with any product, the more you pay, the more you get in return. But Android is helping to bring high-tier specs into more affordable price ranges – in effect, totally redefining what we consider to be table stakes in today’s smartphone market. The Huawei IDEOS device launched last week at IFA 2010 is a classic example. The IDEOS brings deep integration between OS and hardware to maximise performance (hence the Google logo on the back) – also brings capacitive touch, WiFi, 7.2Mbps HSPA etc – all for a price that is mooted to go as low as $100 depending on the market of launch.
- What is clear, however, is that unlike say the iPhone platform where is essentially no hardware or price point choice – is that Android as a platform is beginning to offer a broad array of choice. But is that choice or fragmentation? Is there a threat that users become disappointed by devices at a lower tier, where performance is still compromised – the day-to-day usability of a T-Mobile Pulse Mini at the low-end when compared to a Galaxy S at the top-end is like chalk and cheese.
- One reason why Android has grown in popularity amongst operators is the ability to work with handset OEMs to create What is of note of all of these operators? All actively pursued operator-branded devices in the past (usually with WinMo), but now moved across to AndroidAll have the global scale and reach to ensure that the addressable market is sufficiently large to try to ensure the additional development costs are offset Each has a vast array of assets in more price-sensitive markets, which present a healthy targets for sales of these devices That being said, we do see other operators evaluating the space to bring their own customised versions of devices to market – perhaps of note in the Nordics is the work that 3 Group has done with ZTE in order to realise the development of the sub-€100
- Verizon – Bing – removal of Google as default search option on the device. Part of carrier search for margin on services – presumably has tied up a nice deal with Microsoft to install Bing on its devices User rejection of operator applications is not a religious thing – they will tolerate applications that add value, but where there is little perceived value and where the apps are intrusive (i.e. can’t be removed), it seems that user acceptance thresholds are low. As such, operators need to evolve their firmware update strategies to reflect this subtle
- As I mentioned, a key driver for Android uptake has been its ability to quickly attract multiple operators within specific territories. Each of the UK MNOs (as well as the MVNOs such as Virgin) has noticeably ramped their Android portfolios with the major drive beginning in the first half of 2010. Perhaps of most note is that we see that Android is filtering rapidly through the segments. One thing that is often forgotten is just how prepaid dominated the world is – even in the UK the market by subscriptions is essentially just under two-thirds prepaid – globally the figure is around 7 out of 10 – so for Android device sales to really ramp, prepaid will be key. We can now see that
- Don’t want to go through Marketing 101, but 3 main choices in a market.Segmentation – seeing some according to price.
- 5 groups:HTC and Motorola – close relationship with Google, and strong investment in Android. Sense UI and Motoblur.Samsung – still a multi-OS vendor, but H, LG, ZTE, Acer - Sony Ericsson – arguably still adapting to working with Google and its rate of innovationVendors like AlcatelCould also look at relationship with chipset vendors (particularly Qcomm)2 groups:Close to Qcomm:HTC & Moto.SEMCAlcatel, ZTE, Huawei, Acer – working with QcommLooking to leverage alternative Apps processors:Samsung & LG
- Shows:Rapid adoption of latest OS version (and success of recently released phones)Still some phones launched with older versions of Android (e.g SEMC at 1.6 – only just updated to 2.1.)The version number is important as only the newest device can access all the apps on the Android Market.
- Apple has a 3x advantage over Android in terms of total applications. App Store launched in Jun-08, Android Market in Dec-08 – roughly a 6-month lag, but there’s about a 12-month lag in terms of number of applications available to users. Android just about reached 100,000, a point that Apple reached in Sep last year. Apple advantage reflects its dominance of developer mindshare Apple lead in terms of installed base (esp. across iPhone/iPod touch/iPad etc)Many discontinued apps on Apple – around 50,000
- Noticeable trends App Store = dominated by paid-for applicationsAndroid = dominated for by free applicationsA key reason for the dominance of free applications is the fact that the ability to download and pay for applications has been limited to date. Android users in only 14 markets are able to pay for downloads, whilst developers are restricted to just 9 countries in which to register to be able to sell paid-for applications. Also, reflects the difficulty of users to pay for Apps – where as the link of the iPhone to iTunes established a clear and well-deployed payment channel on the Apple App Store, Google’s limitation to Checkout (and now Paypal) is limiting uptake of paid-for applications. Clearly, the spread of alternative payment mechanisms is going to be key to Android application success. Rumours of a tie-up with Paypal will help grow the addressable market, but realistically carrier billing is going to be essential to future uptake. The first operator globally to do so was T-Mobile USA, but it is widely anticipated that more operators will join the bandwagon. Nokia has been much more aggressive in pushing carrier-billing and it’s clear why – it sees a 13x increase in downloads of paid-for applications once carrier billing is introduced. Nokia is now up to 85 operators in 26 countries that support carrier billing via Ovi Store.
- iPhone shipments to continue growing – expansion of partner operators. Upside opportunity from move into newer segments (mid-range iPhone) as it did with its iPod portfolio – shuffle, Nano, iPod Touch or targeted at different segments. Android will surpass iPhone sales in 2010In fact, Android is rapidly chasing down Symbian to reach the global number one position. There are of course many uncertainties in the market. - How will Windows Phone 7 alter the outlook for Microsoft. Will launches at the end of this year evoke the same excitement that we see around platforms? - How will Nokia develop under new leadership and with new devices?