Examples of Smartphone Specialization and Implications for Google’s Control

A while back, Bob O’Donnell wrote a piece on Techpinions titled “Tablet and Smartphone Futures: Specialization”.

Ultimately, technology products are likely to follow the path of other mass-produced goods, such as cars, appliances and even clothing. In all those markets (and many more), the ability to specifically target different types of consumers and then create products that match the unique needs/interests of those different consumers is what allows companies to thrive. Now, it’s time for technology companies to step up to those challenges and give us the breadth of product options that the market is hungry to see.

I very much agree with Bob’s point. The wider a product penetrates a market, the more diverse needs it will have to address. This is what has happened in almost all markets, and although personal computing devices are different in that customers can install software to customize to their preferences, there is little guarantee that this is sufficient to satisfy the very divergent needs.

Furthermore, diversification is not necessarily aligned with the interests of the platform owners. In the case of Apple, they try hard to control the experience on their devices. They minimize customization options in the name of simplicity. They try hard to find a single one-size-fits-all that works well. In the case of Google, the first started by allowing OEMs and carriers to customize the Android OS, but then scaled back when they felt they were losing control of the platform, and that fragmentation was becoming an issue for developers. It is clear that the platform owners are discouraging diversification.

What we are seeing is a natural tension between conflicting requirements. In this situation, small changes in the market could dramatically shift the balance of power. This is why I’m very interested in observing how specialized products will enter the market, and what level of success they will achieve.

One example that cropped up recently is the announcement of some very interesting Android smartphones from KDDI, the second largest carrier in Japan.

The first exhibit is a smartphone targeted towards primary school pupils (miraie KYL23). Apart from the hardware which is designed to withstand the constant abuse that one can expect from small children, it has good Web filtering features, and can even track what swearwords and insults your child may have typed-in. You cannot use Google Play or other Google Services; instead, you install apps from a specialize app store.



Message pops up when you try to enter “ばか” (stupid). It tells you that you are using a bad word, and your parents will be notified.

When you think about it, it’s absolutely obvious that you don’t want to use a Google certified Android device on these smartphones, and you really have no choice but to go with AOSP.

As the smartphone market saturates and it becomes important to address the smaller niche markets, it is very likely that we will see even more customization. In this situation, the restrictions that Google applies for Google Play certification may be too limiting, and AOSP may see more adoption. Obviously, Apple will not play in this market.


Importantly, the miraie KYL23 smartphone is manufactured by a Japanese smartphone vendor, Kyocera, which also sells Google certified smartphones. Therefore, although it has been rumoured that Google does not give out licenses to companies that also sell AOSP or forked-Android, this does not always seem to be the case.

Amazon and the Capitalist’s Dilemma

Jan Dawson wrote a great summary of Amazon’s business and gave some ideas on why Amazon might be buying Twitch.

I am very unfamiliar with Twitch, but Jan’s summary of Amazon fits some thoughts that I have regarding Clayton Christensen’s “Capitalist’s Dilemma”. I would like to touch on that here.

I previously wrote a very brief summary of the Capitalist’s Dilemma on this blog.

Not all innovations are equal. In fact, the majority of the innovations that are happening today are detrimental to economic growth. The authors dissect “Innovation” into three separate categories and argue that the one that create jobs (market-creating innovations) is currently being de-emphasized, while the one that eliminates jobs (efficiency innovations) is being highlighted.

Jan Dawson summarizes Amazon’s business as follows;

Essentially all of Amazon’s business rests on the transfer of spending from legacy categories to categories it competes in, whether that’s e-commerce replacing bricks-and-mortar retail or digital content replacing physical content (or even cloud computing replacing premise-based computing). As such, Amazon’s addressable market is directly tied to three factors:

  • the size of the legacy markets it’s seeking to disrupt
  • the degree to which those markets are shifting into categories Amazon competes in
  • the market share Amazon is able to capture.

From here, it is plainly obvious that Amazon’s business (with the exception of AWS perhaps) perfectly fits Christensen’s description of an “efficiency innovation”. That is to say, Amazon’s business eliminates jobs and is detrimental to economic growth.

Unlike Christensen’s “Innovator’s Dilemma”, the Capitalist’s Dilemma will not directly impact a company’s business. In fact, it will usually greatly benefit short term profits. Instead, it will slowly deteriorate the health of the company, leading to long term effects. Even more significantly, it will negatively affect the national economy as a whole.

This suggests that Amazon itself will benefit from its current focus on replacing brick-and-mortar retail. This may even be true in the long term. However, Christensen’s observations predict that the US economy as a whole will suffer.


Using the Capitalist’s Dilemma as a lens, it is possible to argue that services like Uber are also mainly “efficiency innovations”. It’s definitely something to consider before singing praises of tech innovation.

Can China Develop a Successful Operating System

Reuters reported that China is developing a homegrown operating system.

This is not the first time they have done this. However this time, they have a much better chance;

  1. China’s worries about the U.S. owning computing technology have largely been justified by the the revelations by Edward Snowden.
  2. China now is much more powerful in the computing scene. They manufacture most of the world’s smartphones.
  3. Chinese Internet companies have grown to the extent that they make a Google-less Internet a reality in China. Although they have yet to expand to other countries, China has demonstrated that they can develop viable alternatives to the most powerful Internet company.
  4. The dominance of Microsoft Windows has waned. In China, the majority of PCs ran Windows but only pirated versions of Windows XP. Now that Microsoft has ended support for Windows XP, China’s PC OS situation is up for grabs. This is even more so given that China has recently banned Windows 8 for government use.
  5. Although I don’t have hard data, it seems that the software industry in China is quite vibrant. There are many titles for both Android and iOS developed inside China. I suspect that there is quite a bit of software talent in China.

This time around, the Chinese OS seems to have a fair chance.

It’s obvious that this will be a Linux based system.

About General Electric’s Sale of their Appliances Business

One piece of recent news that I found very intriguing is that General Electric is currently considering selling its appliance business.

It’s not that I’m surprised that it’s selling the business. What I find interesting is that it took them this long. And in fact, GE’s appliance business is not really in bad shape, and makes OK profits. GE is simply focusing on the hugely profitable businesses that it has. It doesn’t seem that the appliance business is bleeding profits at all. Annual sales were 8.3 billion USD, and had 381 million USD in profit. If fact it is even growing at 1.6% CAGR since 2009.

From a marketing perspective, the appliance business appears to be the ultimate commodity. Innovation is slow and Asian companies like Samsung have been making competitive products for a long time (of course, before Samsung there were the Japanese as well). This begs the question, why haven’t low-cost Asian manufacturers disrupted the whole market? Why are high-cost Western manufacturers still in business?

If you look at the competition, it appears that US and Europe companies are doing quite well, keeping even the almighty Samsung at 10.5% U.S. market share. The brands that dominate the market are Whirlpool (USA) and General Electric (USA). Globally, Sweden-based Electrolux is the second-largest appliance maker behind Whirlpool. Amazingly, despite commoditization and international competition, the US and the Europeans still own the US and the global appliance market.

If you look at the consumer electronics business, things are very different. Hardware manufacturing is almost completely dominated by East Asia. Virtually no smartphones are produced in the US? Apple is the only successful US-based smartphone brand (now that Lenovo owns Motorola). The exact same can be said for personal computers, TV, radios and all the popular consumer electronics products.

Looking at this the other way, why is the USA still so strong in software? Why do the Japanese and the Koreans lag far behind in software? What makes the software industry more immune to disruption by the emerging east Asian companies?

There is a lot to be learned here. What is obvious is that although commoditization surely results in small profit margins, it does not follow that low-cost entrants will emerge to engulf the leaders. It is less clear what market conditions and strategies allow the leaders to prevail (albeit at low margins), and what causes them to lose out to the entrants.

Understanding Hardware Modularization in the Android Ecosystem

Guru Prasad has an amazing website where he writes on a variety of topics related to India.

In the context of innovation in smartphones, he has written a wonderful series of posts which answer the following question in great detail and clarity;

“How do companies like Micromax & Karbonn offer smartphones which are similar to Samsung & HTC but at less than half the price?”

  1. Micromax Phenomenon: Propaganda or Reality?
  2. Part 2: Micromax Phenomenon: Propaganda or Reality?
  3. Part 3: Micromax Phenomenon – MediaTek Revolution
  4. Part 4: Micromax Phenomenon – Quad Core Myth & Propaganda

I suggest everybody who is interested in innovation to read all of these posts.

I myself have just started to read these posts, but I found this paragraph which I think sums up very well the reason why Samsung is struggling.

As we can see from the above examples, Indian companies like Micromax, Karbonn and others place bulk orders from Chinese OEMs and sell them under their own brands in India. It might come as a surprise to find that even companies which are no way related to cellphone industry, nor have the experience have begun to buy from OEMs and sell them under their own brands. Even a water heater & wet grinder company like Kailash is selling Android phones under it’s brand. Television companies like Videocon & Onida also do not want to miss the race and have introduced several phones under their brand.

This is quite extreme but is not without precedent. Basically, any company in any industry that has brand recognition or direct contact with customers, can now extract profits by selling smartphones through their own brand.

It reminds me of the PC industry in the 1990s. In Japan, there was a cult religion called Aum Shinrikyo which decided to enter the PC business. They assembled PCs and sold them through their own shops. And they were quite successful.

Will Attractive Profits in the Android Ecosystem Move to Component Makers?

In a previous post, I discussed that Clayton Christensen’s “Law of Conservation of Attractive Profits” predicts that attractive profits will move from the Android OEMs towards adjacent layers in the value change.

One possible layer is the SoC component manufacturers. I am very unfamiliar with this market, but I think that in this market, Qualcomm has historically been very strong with its Snapdragon series of chipsets. The new rising star is MediaTek which is very popular among the new OEMs like Xiaomi and MicroMax which sell their smartphones at very low costs. It seems like the rise of MediaTek is recently pressuring Qualcomm.

Unlike the Smartphone OEMs, many of which are having trouble generating profits, Qualcomm and MediaTek are quite profitable. Apparently due to its focus on emerging markets, MediaTek’s revenue growth is quite remarkable, up 62.7% year-on-year.

Whether or not the SoC component layer will earn attractive profits depends on the structure of the market, barrier to entry, capital intensity, commoditization or Android hardware, bargaining power relative to Android OEMs, bargaining power relative to Fabs, etc. It will be fascinating to watch how this market evolves. Unfortunately, I don’t have enough understanding of the market to make a reasonably informed prediction. My gut feeling however is that the situation may eventually resemble the PC market, where Intel owned a huge proportion of the attractive profits.

Why I Think Zero Rating is Good

I have previously written about the rapid rise of “zero-rating”, that is the practice of carriers providing free access to specific web-sites or Internet services, but charging for access to other sites.

This is in direct conflict with the net neutrality ideology which argues that (citing wikipedia);

Internet service providers and governments should treat all data on the Internet equally, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, and modes of communication.

Just recently, the Internet.org initiative sponsored by Facebook released an app for “zero-rating”. Through this app or the Facebook app, customers of Bharti Airtel’s Zambian subsidiary will be able to access the following services with free data charges.

  1. Facebook and Messenger
  2. Wikipedia
  3. AccuWeather
  4. Google Search (Search only. Data will be charged if you click a link to go to another site).
  5. Local services such as job portals.
  6. The women’s rights app WRAPP.
  7. A basic library of Zambian laws.

I really like the selection. It is so noble.

If I was somebody like Nelson Mandela, someone who was working hard to bring democracy, freedom and equality to Africa, I would probably select the exact same services.

At least for our children, I’m sure most parents would choose something similar to the above selection over the commercialism driven “net-neutral” Internet.

As these “zero-rating” data plans become more popular, we can expect many more services coming on board. I hope that Facebook and the carriers will manage to resist the lure of commercialism, and continue to select the good ones and reject the bad ones based on a high ethical standard.

Amazon’s Hardware Strategy Mystery

Ben Bajarin recently tweeted a chart showing how tablet market shares have changed since 2011.

BenBajarin 2014 7月 25

In Ben’s tweet, he noted how Amazon’s market share has now become very small, and that is certainly true. Although Amazon’s share tends to rise sharply in the holiday season and we can still expect another bump in Q4 of this year, 14Q2 is seeing very very small sales for Amazon.

At this point in time, I think that it is worthwhile to review how Amazon started selling the Kindle Fire, and how its strategy has unfolded.

  1. The Kindle Fire launched in 11Q4 at a very low price of $199 (compared to $499 for the iPad) which was only possible because Amazon subsidized the price.
  2. The Kindle Fire was the catalyst that showed how Android tablets could take market share away from Apple. Up till then, companies like Dell and HP had tried to compete with Apple without any noticeable consequences. The extremely low cost of the Kindle Fire finally allowed Android tablets to start expanding market share, and it became obvious that Android tablets had to be priced in this domain if they were to ever sell well.
  3. The Kindle Fire was a low-end device and omitted many features that were present in the competition.
  4. The success of the Kindle Fire demonstrated for the fast time that Android tablets could compete against the iPad under the condition that the price was kept under 200 USDb (many Android tablets had previously tried to enter the market, but all had failed).
  5. In particular, Google’s Nexus 7, which was released in July 2012, was obviously designed to match the successful formula that the Kindle Fire had pioneered; a 7-inch screen and a price below 200 USD. The Nexus 7 shows up in Asus sales in Ben’s chart, which was significantly elevated since 12Q3.
  6. Amazon released the second generation of the Kindle Fire in 12Q4 with a price reduction to $159. They also released two higher-spec versions, the Kindle Fire HD priced at $199 and $299. With these updates, Amazon saw market share similar to what they saw with the first version.
  7. Amazon released the third generation in 4Q13 for 139 USD, again together with two higher-spec models ($229 and $379). Amazon again saw good sales in the holiday season, but sales dramatically dropped in the next year according to Ben’s chart.
  8. Importantly, the Nexus line of tablets (produced by Asus) also lost steam after the initial introduction.
  9. The only branded tablet that saw an increase in market share during this period was Samsung. Although I cannot find pubic data that explains Samsung’s rise, it is likely that Samsung’s sales were the result of bundling with smartphones and possibly TVs; they weren’t selling by themselves and people got them even when they didn’t really want them.

We can clearly see that despite initial expectations, the Kindle Fire tablets have not really grown to be a strong contender in the tablet market. This is also true of the Nexus 7 lineup. The question is, could Amazon have done better?

We know that a large part of the “others” in Ben’s chart are non-branded tablets, which are generally very cheap, low quality and come out of the Chinese technology ecosystem. These have been selling mostly for watching video. Samsung’s sales also come from bundling which means that the cost to the consumer is very low or maybe even free. What this means is that although the Kindle Fire was just about the cheapest usable tablet when it debuted, that is no longer the case. Kindle Fire languished because it was no longer the cheapest tablet that was barely usable.

This suggests that Amazon could have done better with the Kindle Fire if they had continued to pursue their low-end strategy. Instead of moving up-market with the Kindle Fire HD and HDX, they could have instead gone lower into possibly sub-100 USD price points. They could have even provided the Kindle Fire for free with an Amazon Prime membership subscription. In fact, this is exactly the strategy I had expected Amazon would pursue. I actually wrote a blog post back in October 2011 (in Japanese).

In my old blog post, I expected Amazon to focus on creating a tablet that was so limited in features that the only thing you could do with it was to consume content. I expected that Amazon would continue to omit the camera, mike, gyroscope, and cellular connectivity, because these were not essential for reading books or watching videos. They could even have continued to use Android 2.3 as the base for their OS.

This is not the strategy they pursued. Instead of staying at the bottom, they moved up to the mid-market segment. Even though Amazon’s prices decreased, competitor prices dropped even faster. The Kindle Fire is no longer a product that stands out in price, and as such, it has lost its unique appeal. No wonder that sales are not expanding.

It’s a mystery to me why Amazon is pursuing the mid-market in hardware. If you look at the recently announced Fire phone, they are even trying to sell a high-end phone with a significant profit. My opinion is that aiming for the mid- to high-end does not make any strategic sense for Amazon. I am totally bewildered and I’m suspecting that Jeff Bezos is starting to get confused.

China Telecom Exclusive Partnership to Sell XBox One in China

As I have written before, I am suspecting that the commoditization of smartphone hardware is shifting power to carriers.

Recently we have learned that China Telecom has formed an exclusive partnership with Microsoft to sell the Xbox One in China from September 2014.

I do not have enough knowledge of the market to make any conclusions, but I sense that this is a part of a general trend towards carriers exercising more power over hardware vendors. It will be interesting to see how this story unfolds.

Mobile Payments in Africa

Steven Sinofsky wrote a great post on Re/code describing mobile payments in Africa. There is so much important information in here and I’ll probably have to read it several times to fully appreciate it.

Here, I just want to mention one thing.

That is, “Necessity is the mother of invention”.

Importantly, necessity is very different depending on where you live. If science & technology were essential for invention, then the U.S. would dominate globally. That is not the reality.

Innovation happens everywhere, in places where you least expect it, regardless of technical prowess.

Innovation does not necessarily “trickle-down” from the U.S. In fact, it could trickle-up if we gave it a chance.