Nexus one : Of Open Mobile, Chicken and egg , and turkeys

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Note:

This is a longish blog post and I have included many links to validate some of the vision in this strategy which I have been covering for a long time on this blog. If you want me to add you to my mailing list, please email me at ajit.jaokar at futuretext.com. You can also buy my latest book Open Mobile – Implications for Telecoms/Devices, Web, Social Networks, Media and Personal Privacy

When the iPhone was launched, I said The iPhone is extraordinary not because of its UI but because it’s the tail wagging the dog…

Superficially, you could compare the physical features of the iPhone (touch screen, megapixel camera etc) versus existing devices, but in my view the iPhone’s potential lay in it’s ability to disrupt the existing value chain (for instance bypassing carrier billing through iTunes).

Hence, I called it ‘the tail wagging the dog ..’ Nexus one (Google phone) has a similar impact on the prevailing value chain.

As early as Aug 2007, I asked the question The Chicken and the Egg: The device and the network – which came first? i.e. The next time you upgrade, will you choose the device first or will you choose the network?

And I concluded then that

a) The chicken and the egg question is won by the handset manufacturers ..

b) But – both will evolve dramatically in the next year or so and especially the Operators will be forced to change existing policies and create differentiation

And also, on the same lines over the last couple of years I have been discussing themes like:

1) Will device manufacturers choosing Operators become the rule – rather than the exception?

2) Isn’t it time we put the customer at the centre of the mobile data value chain: A new value chain for the Mobile data industry

3) In an IP(IMS) world, the mobile device will drive convergence because services shift to the edge of the network – and devices are at the edge of the network…

4) Long tail devices

The Nexus one manifests that ‘chicken and egg’ vision which makes it disruptive much more than the ‘phone’ itself. ..(we come to the turkey later!)

The phone is expected to do well with Barclays Capital analyst Doug Anmuth estimating Five to six million units sold in 2010. Engadget has a great post about the hardware and workings of Nexus One. – so, here I am discussing the disruptive impact of Nexus One on the value chain and not the device features themselves

Nexus One , the Open Mobile philosophy and it’s impact on the value chain

According to Google, Android was developed with one simple idea: Open up mobile devices to enable greater innovation that will benefit users everywhere. and Google also sees Nexus one as a ‘convergence point for mobile technology, apps and the Internet’ sold through Google’s own web store under the strap line of ‘Web meets phone’. Google also indicate that ‘It’s the first in what we expect to be a series of products which we will bring to market with our operator and hardware partners and sell through our online store.’

This is very disruptive and Arstechnica calls it the Divide and conquer If a particular Google-branded phone is not on a particular carrier, then that’s only because that phone doesn’t have the proper radio to support its network. In addition to being unlocked, the phones will also have bundled plan options where the pricing and details are up to the carrier, but every carrier will offer a plan for every phone that’s radio compatible.

CNN confirms that Chicken and Egg philosophy which I alluded to when they say Instead of picking a carrier first and then a phone, the consumers can pick a phone first, and then decide on a carrier. leading the business insider to conclude that You buy the phone from Google – the carrier simply offers voice and data service. without using that dreaded word ‘Pipe’. To top it all, according to Andy Rubin of Google, it seems that Google is NOT trying to make a profit on sales of the Nexus One.. The obvious beneficiaries are the Open mobile advertising model (not the carrier specific/fragmented advertising model) as the acquisition of Quattro by Apple demonstrates.

Impact on carrier business models

Reading between the lines, the carrier reaction has been interesting and mixed. Here are some examples that caught my attention

1) Predictably, there are some concerns that the Google Phone May Add to Network Strain.

2) AT&T announced five Android phones breaking their dependence on the iPhone..

3) T-mobile is the Operator who launched the Nexus One but they say that Subsidised nexus one pricing is not available for existing t-mobile subscribers..

4) Verizon who so recently promoted the Droid says that Nexus One will only be sold by Google directly.

5) Vodafone who did not launch the iPhone initially, now promises Nexus in a few weeks.

6) It appears that Vodafone shop guys are telling customers to wait for the iPhone (and maybe now for Nexus One) – instead of Vodafone’s own 360.

7) Carriers may now seek partners which they resisted recently. Qualcomm seems to be the surprise winner on AT&T. and

8) AT&T now offers carrier billing support for Nokia’s Ovi Store.

What does this mean?

Google’s move into e-commerce is the big news here. You could call it ‘m-commerce’ driven by the Web. Overall, the Web players like iPhone and Android treat the Mobile ecosystem as a platform. The Nexus One does a lot to attract developers and can even be seen as Consider the developer bait. . This is good for third party developer ecosystem. Even the carriers seem to be convinced since AT&T CEO de la Vega said “This category is one of the fastest growing and a real sweet spot for developers, because these customers are hungry for applications,”

There had been a huge latent demand for unlocked cellphones .. but Google makes unlocked cellphones cool! Thats the key difference. It seems that soon the unlocked cellphone maybe the norm and people may look down on people who have ‘locked cellphones’. This subtle psychological shift will have a wide impact in the consumer space.

The next logical step of course is ‘ad funded priceplans’ – I fully expect that these will be on the way and in my view, are great for the customer. There have been half baked attempts in launching advertising subsidised priceplans like Blyk which I never believed in since they lack critical mass. And already, the ‘support’ function(which Operators so bitterly complained about), has been split into three parties: Google, HTC (the phone’s manufacturer), or the phone’s carrier for Nexus One. Finally, ofcourse, Google knows more about the customer since they gather more insights and analysis about the customer(now from mobile devices in addition to the Web)

The turkey (voting for Christmas)!

We have seen recent launches of Android from Dell , Motorola backflip. and Lenovo.

But Google may have ventured into unknown territory with Nexus One. In retrospect, Does a choice of Android seem like Turkeys voting for Christmas?

Even Microsoft did not attempt this (launching a platform and then launching their own device on that platform).

Google is being ‘selectively Open’ here i.e. open when it chooses to be in it’s own benefit. The recent Google Open Memo shows their philosophy(and indeed it has some caveats and contradictions) – but it does emphasise ‘speed’

However, there are some implications:

Firstly, Google could offer device vendors an alternate route to market through the Google store – and this has an impact on the value chain. Secondly, as long as you can uniquely customise it, Android does have value for device makers.

Conclusion

To conclude, we have to ask the question: Where is the value?

The platform strategy always devalues the platform features themselves and shifts value to a higher level of abstraction (in this case advertising) but also apps and services. In contrast, this strategy devalues devices, network and even Android itself.

But more importantly, we have to ask the question: Where is the value for the customer?

And here Google clearly wins ..

It can do this because it is a brand that the consumers for most part value and trust.

In that sense, Operators have for best part, not got the trust of the customer(Think complex priceplans here) . So, we could argue that the customers are the real drivers of this change.

Besides the elements discussed above(unlocked phones, e-commerce, chicken and egg), we have to remember that there will be always one or more breakaway carriers(in this case t-mobile). So, it is not really possible to prevent change even for the Operator community.

For a while, I have been discussing the impact of the change in the form of tectonic plates i.e. changes below the surface which could have a huge impact later.

If you failed to detect the movement of tectonic plate , then the roar of the ‘Open’ Tsunami cannot be missed!

As usual, comments welcome

If you want me to add you to my mailing list, please email me at ajit.jaokar at futuretext.com. You can also buy my latest book Open Mobile – Implications for Telecoms/Devices, Web, Social Networks, Media and Personal Privacy

Image : Scienceblogs

Comments

  1. Tony Fish says:

    Totally agree, however, there is an assumption which needs exploring, is there any supplier power from controlling distribution. The operators and to a certain degree the existing OEM players have in place physical distribution.
    Google today has amazing strength in electronic (distribution) but little to none on the high street. Should retail not be important then we would not have dedicated mobile shops.
    Whilst the game of nexus is 0% new margin, but maintaining (improving!) manufacturing margin, Distribution presence is a real cost over and above direct costs. Even assuming some independents can give point focus that will provide some limited availability where will the “WalMart” effect come from.
    Certain players in the distribution value chain have been been given a get out of jail card. Will be interesting to see who breaks first.
    Tony Fish