The new business model: Competing with partners!

Suddenly, the only way to succeed in the mobile space is to violate the old code of the ecosystem

Blame Google.

It started this. In January 2010, Google shipped a mobile phone handset called the Nexus One. Manufactured by HTC, the device was a pretty good phone for its time, but nothing to text home about.

What was shocking about the phone was that, for some reason, Google decided to compete directly against its OEM hardware partners. And that was something you just didn't do.

The long-tested model for anyone with an operating system that depends on a third-party ecosystem of hardware makers -- call it the "Microsoft model" -- was that you do the software and they do the hardware. You don't compete against them, they don't compete against or abandon you, and everybody is happy.

Google bailed on the Nexus One, but has recently shipped Nexus 4, 7 and 10 versions (a phone and a couple of tablets). More than that, Google also acquired Motorola, and now competes directly and aggressively against every company that uses its Android operating system.

And now Google might compete with wireless carrier partners, too.

Reports suggest that Google could work with satellite TV provider Dish Network to build a wireless broadband network that would compete with AT&T, Verizon and T-Mobile.

So much for the "Microsoft model."

Blame Microsoft.

You know the "Microsoft model" is in trouble when even Microsoft abandons it.

The introduction of the Microsoft Surface with Windows RT ushered in a new era where Microsoft is competing directly against OEM partners the company expects to support Windows 8.

Such a move would have been unimaginable just one year ago. And Microsoft is just getting started. The next Surface, called Microsoft Surface with Windows 8 Pro, will compete against the most sacred group of partners Microsoft has ever had: Its PC-making OEMs -- the likes of Dell, HP, Lenovo, Acer and others.

Microsoft CEO Steve Ballmer says there's more to come.

So why is this happening now?

Blame Apple.

While users and pundits focus on market share, companies tend to focus on profits. And when it comes to profits in the mobile space, Apple is taking nearly all of them.

In the second quarter of this year, Apple reportedly earned 77% of all the profits in the entire phone industry, and did so with only a 6% market share. And tablets are also massively profitable for Apple.

Despite Android's very high market-share numbers, only Samsung is making any money with Android devices.

Both Google and Microsoft have been frustrated not only by Apple's success, but by the fact that they're being held back by lackluster products from their partners. Both companies have separately come to the conclusion that they've got nothing to lose by competing with partners. After all, not competing with them is getting them nothing but dashed hopes and massive problems.

And I believe both companies have proven that they're at least as good as their best partners at making compelling hardware devices.

Besides, where are their partners going to go? With Apple winning all the profits and Android gaining all the market share, there's no viable alternative for OEMs. It's an app economy now, and starting over with a new operating system simply isn't an option anymore.

They've also been victims of their own success. In most of the best markets, the Google and Microsoft brands are far better recognized and appreciated than the brands of their OEM partners.

Millions of consumers out there would rather buy a phone directly from Google or Microsoft than from a lesser brand. Some people would just rather buy hardware from the company that makes the operating system. So if Google and Microsoft want to keep those buyers from turning to Apple, they've got to compete with partners.

It's a new world, and a new market. The "Microsoft model" of never competing with your OEM partners is dead. Now it's "everything goes." Nothing is sacred.

And while this probably isn't great news for the companies that make phones, tablets and PCs, it's great news for consumers.

With Google- and Microsoft-branded hardware coming aggressively on the market, everybody is going to have to work that much harder on quality, design and price. Even Apple

Mike Elgan writes about technology and tech culture. Contact and learn more about Mike at Elgan.com, or subscribe to his free e-mail newsletter, Mike's List. You can also see more articles by Mike Elgan on Computerworld.com.

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1 Comment

Rodney

1

Samsung actually makes a massive profit from mobile phones and sells more than virtually everyone else put together. Samsung now earns 40% of mobile phone profits (http://www.sitepronews.com/2012/11/16/apple-samsung-htc-only-profitable-smartphone-companies/). So while I get your overall point, it doesn't seem like it's all doom and gloom for vendors; at least not the ones with massive marketing budgets.

Furthermore, HTC is carrying the flag for Windows phone now, followed by Nokia (presumably to Nokia's immense outrage). Not Microsoft. Surface sales are paltry at best and the OEMS (again Samsung included) are doing better out of tablets / notebook sales than Microsoft are.

None the less, the reason people would rather buy a phone from Google is 3 fold. 1: People trust Google more. 2: People expect a Nexus to get updates quickly and 3: Nexus devices don't come with stupid launchers (which admittedly you can easily replace but no one likes touchwiz). If OEMS are having a hard time with those 3 points, it's their own fault.

Moving forward, over a longer time, it might be bad news for 3rd party OEMs but if that lowers overall costs for consumers, that's probably ok - as long as it doesn't overly erode choice of models.

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