The decline and fall of HTC

Over the last week a number of people have been speculating on the future of HTC saying that it is at risk of disappearing.  The problem is that having climbed the mountain of volume sales of phones to number three it has failed to ascend to the top and rather has slipped back as a result of poor sales for the flagship HTC One (M9).

The problem for HTC is that the "upgrade" to the M9 was judged by most not to be significant enough from the M8 and so growth stopped.

The creation of the mobile phone mass market was achieved by a few manufacturers who offered a range of handsets.  The manufacturers of my early days in mobile are now consigned to museums rather than still major players, Motorola, Erricson and Nokia.  But then others older than me will say the same about car manufacturers of the early 20th century and we still have cars.

The global dominance of Nokia was achieved not on a single handset but rather on a platform of devices that were conceived thanks to long term analysis and developed not just internally but also using the skills of the IDEO Group.  This meant that both hardware and software evolved dependent on the markets that the handsets were sold in to.

The Android Ecosystem leaves very little room for customisation by manufacturers and contract manufacture means that common components leave devices looking very similar.

The shame is that the early days of HTC saw it make a range of handsets that made use of touch AND keyboard. Why then now are we faced with a single form factor in just two sizes? Perhaps we can expect contract manufacturing will give HTC some space to recover rather than it fail but it is more likely that it will pass into history.  

Some thoughts about the recent developments in the handset space

Well the summer has been an eventful one for Handset Manufacturers.  We have had the expected refresh of the benchmark for smartphone from Apple and whilst they have managed to break sales records thanks to clever marketing and management of supply they didn't in my opinion retake leadership of the sector. Samsung continues to drive ahead with the expansion of the Galaxy brand thanks to a refresh of the Note and the introduction of a wristwatch form factor as remote control/2nd Screen. The car crashes have been spectacular with Nokia exiting the market via a fire sale to Microsoft quickly bettered by the offer for BlackBerry by Fairfax. Have not started analysis of the performance of HTC, LG, Sony who seem to have become casualties in the OS wars of recent years not server enough to kill them but bad enough to make them marginal players.

On the Apple front I was pleased to see just like others in the fashion industry they have given up trying to make size zero yet slimmer. I just hope that they and others will take note of the reviews of the two new iPhones side by side that report the 5c feels better in the hand and start adding curves. But please don't go over the top with a Kim Kardashian inspired monster, if that were to happen it would be on a par with the Pink Motorola V3 razr and signal that innovation had died and marketing was going to kill the business. On a negative front the changes seen with iO7 seem to be cosmetic rather than a genuine shift that takes into account that a 4G handset is a very different device to one that spends most of its time on Wifi. Perhaps next year the designers will rock up with a new OS that moves the world forward rather than paint lipstick on a fading star?

Samsung is a company that always surprises me when ever I interface with it. It's old school centralised command and control structure and long term planning seems inflexible yet surprises in getting the market right.  Unlike any of the other Handset Guys it still seems to value it's channel partners and has strong relationships with the mobile networks who after all will sell the majority of its handsets. Yet design by committee does seem to be throwing up some strange selections. The Mobile Phone business has spent twenty years telling people that don't need to wear a device on the wrist to tell the time and yet they come out and launch such a device.  Looking at the functionality I would have hoped that they would have followed Polar and combined fitness applications alongside the ability to be a second screen for a tablet/phone.

What can I say about Nokia without sounding like Tomi Ahonen? I would point out that when Nokia overtook Motorola to become Number 1 in the world it did so working with the Network Operators and up until the arrival of Elop maintained strong links.  The business was not in bad shape until it started listening to those say they need to get like Apple and so they put all their eggs in the Microsoft basket.

Until last week I was sure that Nokia would be the Business School case study in the decline and fall of mobile phone businesses but then we had BlackBerry!  Just WOW when will the lawyers start filing claims against the Board for mismanagement? When will the regulators start asking questions about financial mismanagement? When will the stockholders realise that Fairfax are the undertakers rather than saviours for the business and the body has greater value to others and seek better offers?  I don't think that we have heard the last on BlackBerry and would not be surprised to see Microsoft own the business once the dust has settled.

I think that we need a decent competitor to Google when it comes to Mobile OS and Apple is not it because it is focused just on the high end. I stronger better Microsoft that uses features from BES/BIS and can manufacture low cost devices that are sold via partners is just the kind of business that would scare the Californian Tech set and in doing so might force them to innovate and develop for a world based on 4G connectivity rather than the patch work networks we see today.

So where in the centre of the mobile universe?

Spent an enjoyable couple of hours today putting the world to rights with some guys I respect in the mobile ecosystem. After joking about now nothing can work unless it's invented by Steve Jobs and comes via an App we turned to trends developing now. Both said that they are considering relocating to San Francisco as at this moment it seems to be the centre of influence as to where Mobile is going. They say that at this moment it is where the money and brains are.

But wait is that true?

I fear that they may be drinking the wrong type of Kool-aid. Whilst at this moment in time everyone feels that the mobile industry rotates around planets Apple and Google these are bubbles similar to the property and internet hype. The risk is that the centring of focus in the Valley will limit the view of demand.

When it comes to adoption has the rise of the App been as successful as SMS, Voice Mail or Ring Back? Will history judge the iPhone and Android as nothing more than a ringtone?

If I were to start a new venture then my investment would be in machine-to-machine and/or mobile healthcare. Given that I would want to develop relationships that enable me to build and exit a business is the Valley the best hub? Should I chose to relocate could I cope with Americans claiming that they rule the mobile industry when they have no understanding of the global standards, have yet to come to terms with the pre paid market because of the idiosyncratic payment system in the US of receiver pays and coverage of mobile networks is patchwork?

But where would I set up?

Europe is fragmented with many small sites offering expertise when it comes to hardware/software/services but does not have the access to finance needed to develop start-ups.

India has lots of Engineers but does not seem to have the ethnographers needed to offer a usable interface. It would be like returning to a Motorola Razr, wonderful to look at but a disappointment to use on a daily basis.

Japan offers money, wonderful networks and engineers looking to develop things people will use. However very few make call on a phone and so what we see is pocket computers as we head towards the cloud.

Where would you set up to have the best chance of success?

Sorry I have been quite

It has been some time since I have posted anything.

The reason is that I have become more and more frustrated with the fixation that the answer is the iPhone for all things that are wrong with the mobile phone market. Just as Motorola got it wrong with placing all its eggs in one basket trusting everything to Apple is flawed.

Those that ask, what about Android? Have to understand that Google is just another walled garden and it to is flawed for other reasons.

The fact that both of these handset developers see the future as about the power of the App store highlights the failure to understand the ecosystem that is the Mobile Phone Industry. Observe the clamour of Vodafone Shareholders looking for the fire sale of minority equity assets to see the bonfire of the vanities.

Google does not seem to understand the timeframes the Industry operates under.

Apple sees life in a binary format of winners and loser which risks seeing the foundations crumble under them. As a futurologist I read the tea leaves for Apple as potentially pulling out of the phone market. Recent developments with the iPad, iPod and Apple TV could all point to no iPhone6. If the App store was the answer look for the BBC News app on the OVI and ANDROID stores it will not be the same one developed by Fjord for the iPad.

Nokia have replaced the CEO as he was unable to develop a handset that would kill the iPhone. As Apple is a very small rival and the real fight is with Blackberry his focus was on the right place. Yes fire him because he did not stop the rise of RIM but not for the lack of a high end handset that fails to complement the ecosystem.

If you fail to understand the need to support the ecosystem what you face is failure of the infrastructure. If Vodafone cannot see a return on the investment for new base stations why are they going to build them?

Once Mobile Networks employed anthropologists and sociologists to understand customer needs and develop products. Now they live on Internet Time which works on open development with Darwinian evolution. Evolution is difficult when the search methodology is a top ten list rather than accurate indexation with a standard taxonomy.

This post is me letting off steam. I might come back and develop some of the observations above or I might lie in a dark room and listen to whale music.

What about the other handset vendors?

Samsung OMNIA HD

LG Watch Phone

Sony Ericsson Idou

Having considered my opinion overnight and today taken a second walk around the stands I wish to say that in a time when the consumer is expected to part fund the handset upfront the rivals to Nokia do not seem to have taken up the challenge.

The Sony Ericsson stand this year did not have the excitement of last, the "new" handset on show was a Symbian S60 concept device.  When when demonstrated came with more caveats than the new Facebook TOS. What we saw was excellent however after the failure of the Xeperia what hope for this device?  The key display was the accessories that you can now get for your Cybershot or Walkman handset rather than new handsets.  Perhaps SE should have made its redundancies in a more effective manner and kept most of the product developers on?  Its showing in Barcelona says that after three good years the company may now face a downward move that might be difficult to arrest.  

Samsung were showing off their latest smartphone with OLED screen and Samsung's own OS.  The industrial design and display on the device is a delight the fact that it is running Samsung's software rather than Symbian or Windows Mobile is I think a mistake.  A survey  amongst those I know that have had a Samsung reveals that most hate the menus and software to a level that means they would not recommend the Brand to anyone or get a replacement Samsung.  The Company has relationships with both Nokia and Microsoft so why not accept the extra cost and buy the software from them?

LG had a stand that was interesting in that it held both the Prada branded devices and their own handsets.  The cabinet that had the largest crowd was the one with the watch phones.  Talking to gadget fans all were once again returned to childhood and wanted a device so that to could be a special agent. The shrinking of   handset into a simple device that does just voice and text has to be the ultimate second device for all those with an iPhone to complain of its poor performance as a phone.

The Motorola offering when it comes to handsets is best left unsaid lets say that it was only on my third trip the their stand that I saw the handsets.

ZTE was interesting in that they have a range of handsets that in terms of form factor look like those that we see here in Europe.  However they are running Linux and operate on the CDMA network.  They did seem to be busy talking with potential customers from the emerging markets as well as those in the west looking for low cost mobile broadband dongles.

Android had a busy stand next to Microsoft's in Hall 1 but whilst Google had booked a meeting room they like Apple seem to have taken the decision that business is best done away from the public eye.

The strangest demonstration over the last two days of a handset was of the Palm Pre.  The Palm employee kept to his script better than a soap opera star showing the Pebble like industrial design and the off screen gesture technology The ability to source contact email and calendar data from multiple sources was interesting the demonstration however was let down by the lack of information as to the build for GSM networks or the exact chipsets to be used in the production models. 

Guess that Six Sigma does not work

BusinessWeek wrote a feature on how Motorola blew it after their results.

Motorola when I worked for it was at the centre of the Mobile Industry with business units that sold airtime, built infrastructure and made handsets.  At the birth of the mobile industry they had a position that none could rival.  

Before the phenomenal success of the Razr they had similar control of the handset market with the StarTAC (which was the last Motorola handset that I owned). The problem with ALL handsets from Motorola was that whilst they looked good and had great reception compared to other handsets it all went wrong when you turned them on.  Despite comments from Customers and Consumers Motorola decided that it new best when it came to user interface and so at a time when others were making handsets that did not require an Instruction Manual they persisted with a solution that required a Personal Tutor!  

Motorola were excellent at helping emerging markets build mobile infrastructure and were one of the first to take minority stakes in Operators.  This fact meant that they were prepared to transfer engineering skills in a way that others did not.  However the role played on the War on Terror has limited the growth of Motorola in these markets.  It is difficult to mount an effective marketing campaign when the TV News has US Military with the Motorola Logo on their helmets, all the product placement that you have on US TV is pointless.

The growth of Mobile Networks means that the airtime business is no longer viable and Motorola exited the industry after the internet bubble.  

The collapse of the integrated model means that the management of Motorola stopped having the data necessary to make decisions from their internal systems.  This failure was compounded as Motorola retrenched to the US and so was developing solutions for just one customer base rater than being a true Multinational.  When I was leaving Motorola they were promoting Six Sigma as the  management tool on which to run the company.  I guess even if you have reduce the error rate down to just 1 in a Million if that mistake happens to be at the very top of the decision tree then it is fatale.  

Motorola is in a deathspin, regardless of the quality of the executive management and the breadth of contacts it has stopped looking to Europe as a customer base.  The only debate is how long will it take to die?  Its interaction with Apple proves that the Engineering focus  is still core to Motorola and so it is unlikely to find salvation in Android.  Cut off half the headcount is not about growth but rather the preservation of cash and so with Mobile World Congress approaching I expect to see long faces from those still carrying Motorola business cards and from the alumni shaking heads about the fall of a giant.

Photo comes from Science Museum in the UK

A New Dawn or the beginning of The End for Nokia?

This week we have seen the presentation of results for Nokia and Apple which in headline terms present a change in the fortunes of the leader and a significant challenge at the high end of the market.

In his presentation  Ollli-Pekka Kallasvuo Chief Executive of Nokia said  “In recent weeks the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry. ” 

Apples results show that it sold 13.7m devices in 2008 which is about 1-1.5% of the total worldwide market by volume.  The last quarter saw only 4.4m sold rather than the 5m the market estimated. The key comment made in the Earning Call was that the iPhone performs poorly in non-subsidised markets, indicates that at some point when demand evens out carriers will have more power over the price they pay Apple for the handset. 

With 40% of the handset market and the Integrated model rather than contract manufacturing Nokia has better Economies of scale than its rivals.  Apple is a design house that gets its handset made by Hon Hi as a contract manufacturer.  When you are making Phones in small volumes doing so in someone-else's factory makes sense however is it something that works when you have more than one design and 10% of the market?

Whilst some see the entry of Apple and Google into the handset market as the opening of the ecosystem thanks to the application platforms that they present I have to ask if the economics work?  The Network Operators have made investments in infrastructure, distribution and support over the last 20 years.  Why would they not expect some return on that investment and security over the future customer revenues?

Looking at the history of Mobile I recall that Nokia assumed that with the arrival of Data services in the late 1990's it presented a chance to take control of the consumer with the launch of Club Nokia as the primary Wap bookmark.  The result was a boycott by the networks until they localised devices for each Operator.

Talking to those who work in FMCG I am told that advertising is not about getting someone to switch from Coke to Pepsi but rather to get them to increase the volumes they consume.  The same is true with Handsets most people say that they are a Nokia user, Sony Ericsson person, Blackberry Addict rather than Orange customer, Vodafone Fan, O2 Punter.  This Brand loyalty makes it difficult for new entrants to capture market share the rise of Blackberry and HTC has taken 10 years to achieve.

The presentations at Barcelona next month will be interesting in that we in Europe will get to see the new Palm Pre and perhaps the first Android based handsets from Motorola as well as new handsets from all those in the mainstream.  I hope that we will get to see the first devices that use the Snap Dragon chip which could offer features better than the current smartphones with hopefully better battery life. 

Nokia will innovate devices in the economic downturn.  The conditions hopefully will mean that they cut a number of handsets from the product range in an effort to improve the user experience and quality of the offering.  In light of the downturn will Motorola, Samsung and Sony Ericsson be able to do the same? If they fail to then they will be the ones who lose out to the New Entrants.  Before I see Apple as anything other than an opportunist they will need to offer a range of handsets similar to their iPod or Laptops.

Some quick thoughts

Have been busy causing trouble and disrupting poor thinking in some of the big clients that I consult for.

On one level I am ashamed by some of the thinking that I have seen from the Blue Chip Strategy Houses and have to hope that clients will reject the invoices when they are presented. However I fear that the fact that people were not fired if IBM were hired rings true when it comes to Bain and McKinsey.

Over the last week I have been forced to look at the published analysis of Mobile Broadband in Europe more than I would have chosen to. Clients have asked will we see the Mobile Networks follow the fixed in becoming just a dumb pipe? The one thing that I think will stop this is the payment relationship that the mobile networks have, if you already have one payment mechanism why would you need to invent a new one as you did with pay pal on the fixed internet. I also think that Voice could play an important part in the new data services that we will use. Vox shows some of the possibility with turning you voicemail into text. My Opera browser on the desktop shows some of what might happen with its voice controls. Before you buy into mobile broadband, the situation in Sweden, Finland or Austria is not something that can be used for the Globe or even the five biggest European markets on the basis of population. PC ownership in Spain and Italy is far lower than in Northern Europe for a start.

What are Nokia doing with Symbian?

Since the departure of Psion from the party it started Nokia have controlled the shape and direction of Symbian. We are told that Symbian leads the Smartphone market in terms of sales globally. However do Symbian phone's demonstrate that they are smart? When I was a Psion user you had a community of geeks who developed and exchanged software which they hoped they could replicated on Phones. They failed because the Networks were closed to personalisation that was more than just wallpapers and ringtones. I have explained that I see handsets as looking somewhat like the computer market of the mid-1980's in that we have too many Operating Systems. Only history will prove if Symbian was the DOS3.1 of mobile OS rather than VAX. The power of Nokia has put Symbian at risk because of its close association. At the moment all I see is Nokia saving money paying licence fees and the demise of S40 because the only reason it is used at present is because it has a lower charge. If they both have a zero cost Nokia will Supersize the OS with S60.

Was Motorola's new handset the last roll of the dice? This weeks new handset with its Kodac 5Meg Camera was behind the curve once again. Is this something to show that they still are around in the hope that they can find a buyer? Will be interested in seeing how public Huawei are about the PE House offers for a stake in their Handset Business. Should give an idea as to just what my old Motorola shares are worth not that I expect to be able to more than buy the family a round of ice creams with the "profits"!

Today's FT shows that what some Vodafone shareholders wanted may be about to come to pass with the Head of Verizon talking about taking control and buying assets overseas. The new CEO faces a challenging time when he takes the top job at Vodafone. I expect that those in Newbury are on for exciting times for the next 12 months.