Thursday, August 18, 2011

Another one bites the dust

The mobile dominos are toppling fast. This week, Motorola comes off the market with their purchase by Google (not sure how that's going to pay for itself) and now HP had pulled out of the tablet/phone market entirely - only about 6 weeks after entering the tablet market in the first place. Go figure. Meanwhile, Apple's the only company in the hardware biz with sales increases.

What's the secret here? I think it's kind of simple. Apple recreated the mobile phone with iPhone. Google frantically redesigned their nascent OS (Android) to clone as much of iOS as possible, and gave it away to make sure that Google services would remain available in the new mobile world. Meanwhile, all the phone vendors who previously built their own operating systems all united behind Android because it was free. Thus saving a few dollars per handset - which may seem like a small amount but remember how slim margins are.

Meanwhile, RIM and Microsoft were so late to the party as to render themselves irrelevant. Symbian was DOA. Palm rebooted themselves with the WebOS, but it was too little too late and they sold to HP last year.

So now the phone business is realistically two contenders: Apple at the high end (with their single handset model and by far the most robust developer ecosystem) and Android. Android, though, isn't a monolithic platform. It's just what everyone who doesn't sell an iPhone puts on their commodity hardware.

The dirty secret of Android is that its market share is irrelevant because they dominate the low-end of the market - people who get "smartphones" because that's what phones look like nowadays. People who shop on carriers that don't offer iPhones. And a lot of people without the money to spend on the apps that make a platform a worthy development environment.

In other words, you've got iPhone and then everyone else - and the iPhone thus far continues to dominate where it matters.

In the tablet space, this is even more of a mismatch. With the carrier lock out of the equation, iPads sell through at a 1:1 ratio. There's virtually no inventory. On the other hand, all the other tablet devices combined sell at a lower rate than Apple sells their Smart Covers (probably less than whatever the bestselling Smart Cover color may be), and the figures on HP's sell through that leaked this week indicated that fewer than 1:10 of the TouchPads sold to Best Buy made it into customer hands - not even factoring in returns. And this for the 3rd place (if that) tablet platform. RIM's results with the PlayBook are about as dismal, but RIM is stubborn. And Samsung has had middling results at best.

See, people don't want tablet computers. They want iPads. And unlike in the phone market where other factors are at play (carrier choice, plan pricing, contracts) the iPad doesn't have those constraints. Plus they have an ecosystem that dominates. No wonder Apple sells them as fast as they can make them.

We'll see what Google does as Motorola's owner. Either they become a unified hardware/software vendor that can compete effectively (screwing all the vendors who have come to depend on Android in favor of their own Moto division), or Google just shot themselves in the foot. Remember, Motorola Mobility isn't profitable, hasn't had a true hit since the RAZR, and their leading US product doesn't even get Moto branding - it gets Verizon's Droid brand. They have patents and middling industrial design. That's pretty much it.

Check back with me in 6 months on this one.
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