24 Comments

Summary:

Android has become the saving grace for Motorola, which until recently, hasn’t had a “hit” device since the RAZR over five years ago. With the original Droid, and now the Droid X, Motorola is back in the game, but is Android a short-term or long-term solution?

Like high-octane fuel, Google’s Android platform is accelerating handset sales for companies using it. Motorola is the latest beneficiary, says Mark Sue, Managing Director at RBC Capital Markets. He wrote in a research note today, “that Motorola’s Droid X has exceeded even the most optimistic views.” Such optimism and demand for Android devices has RBC thinking prior estimates for Motorola’s 2010 calendar year revenue and earnings are conservative at $21.7 billion and $0.32 per share. Android is clearly helping Motorola in the short-term, but can it power long-term success?

Indeed, Android has become the saving grace for  Motorola, which until recently hasn’t had a “hit” device since the thin RAZR was introduced at the end of 2004. Until the November, 2009 release of Motorola’s Droid, the first Android 2.0 device, Motorola was slowly fading from the phone forefront as the company tried to replicate success of the original RAZR with minor tweaks. What a difference an operating system and ecosystem can make. Early estimates show that Motorola sold 250,000 Droid handsets in one week after launch, and well over a million in the first 74 days of sales.

Motorola has followed up the initial Droid with Droid X, already sold out on-line and with a 2-week delay (Verizon Wireless says new Droid X orders will ship by August 3). Given the large display, speedy processor and an high-definition video recording capability I found by reviewing the handset, I’m not surprised to see the Droid X in short supply. But features are only part of the story — by marrying Google’s Android operating system to capable hardware, Motorola has produced another hit. The question is: Will Motorola’s reliance upon Android end in decline, just as it did with the RAZR?

At the moment, Motorola’s use of Android is working out nicely. Part of the reason for this is the backing of its main U.S. carrier partner: Verizon Wireless. The original Droid wouldn’t have been as successful without the $100 million in marketing dollars from Verizon, and it seems like there’s a Droid X commercial playing hourly on my television these days. If Verizon chooses to spend more ad dollars on competing Android handsets, it would be a blow to Motorola, although the impact will lessen over time — Motorola is gaining free word-of-mouth marketing thanks to customers of the Droid and Droid X.

The market for Android devices is getting crowded as well, another factor that doesn’t bode well for Motorola. At last check, 160,000 Android handsets are activated daily, working out to more than 58.4 million handsets annually. As good as Motorola sales of the Droid phones are, the company is still just a drop in the bucket. Companies such HTC manufacture dozens of Android devices that are helping it grow profits. Samsung, too, is beginning to follow the same approach: Its new Android-powered Galaxy S, which I have for a short-term loan, will be available on all four major U.S. carriers.

For now, Motorola is riding high on Android, but the success that Google’s platform brings could diminish over time. I don’t think the company should bother with its own operating system, but instead should continue trying to differentiate devices with innovative software features such as the improved Motoblur software used for social networking interaction. Motorola will need something unique and appealing as more brands leverage Android — it can’t afford stop innovating due to short-term success. If it does, Motorola will be cut out of the picture by a repeat of its RAZR-like reliance on Google’s Android platform.

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  1. Tariq Ashraf Tuesday, July 20, 2010

    Hey Kevin, any idea on when the Droid X will come to Europe in a UMTS flavour?

    1. That’s an interesting question, Tariq, given the Droid / Milestone strategy used in the past. But no, I’ve heard nothing about a different “flavor” of the Droid X as of yet.

  2. There is always a risk when you “outsource” a key component of your product. Given that the mobile OS and the platform is such an integral part of the experience, companies adopting Android run the risk of being dependent on Google in the long run.

    However, this risk needs to be weighed in comparison to the potential payoffs. If all handset producers start developing their own OS, they will waste a lot of resources (i.e., lower consumer welfare) and the chances of everyone being successful is virtually NIL. By adopting Android, these companies can focus their attention on developing hardware competency so as to balance the power with Google.

    Remember, Google did not have a good run with producing their own hardware. In the long run, Google should be happy if it can convince more and more handset providers to adopt Android. Hardware is anyways not Google’s forte and it runs a risk of alienating some of its hardware partners. Thus, it is unlikely that Google with arm twist these partners in the long run.

    Unless you are Apple, Android seems to be the way to go. Motorola, HTC, Samsung have had good success with Android and I hope others such as Nokia take a lesson from this and adopt Android.

    1. All good points, some of which echo my own call for Nokia to embrace Android: http://gigaom.com/2010/07/07/nows-the-time-for-nokia-to-dump-meego-for-android/

      As you say, it takes time and money to develop a platform, market it and attract developers to it. The flip-side is just becoming another Android handset-maker. That strategy is working well for the HTCs and Motorolas, but for how long?

    2. I really don’t think Nokia should adopt Android. In the long run it not good option for nokia nor for any company. People who are bashing symbian don’t know that , it is matured enough for( at least for low or mid tiered phones). Nokia already stopped any resource investment in symbian.They made it open source. They will use Symbian’s matured stack and Qt ui to make good phones for middle and low tier segment.
      You are saying every one who is adopting android can focus on hardware competency. Nokia already have tonnes of that. But now a days no one is depending on that,only company like HTC can invest in that because of their core business. For other there makes no sense to build HW when there lots of manufacturers available.
      Now if everyone started using Android. Pricing of their HW is key for selling. Everybody has to compete on HW pricing. But then only companies like HTC can gain,because they can price their HW at what ever price they want. Those companies who are outsourcing their HW, at what margins they should sell?
      Meego is a good bet. In Meego also, there is maemo which is matured enough ( nokia developed and OPTIMIZED for mobile HW silently for last 6 years or so). Now INtel came on board and is providing good development for MeeGo. There is open source community for it.
      I personally don’t want to be dominated by Android in every part of my life. From my bedroom to living room to office to leisure trip.

      1. I’ve tweeted it once, and I’ll say it again:
        “No mobile OS that existed in the field in 2006 is a competitive OS in the modern smartphone race post-2007.”

        I’ll stand by that absolutely at the high-end of the market, and I think it carries downmarket to mid-tier phones, too.

        Parik, you counter your own argument about Symbian doing well in the mid-ranges. “HTC can sell their hardware at whatever price they want.” Although I’m sure HTC has real costs to recopy, low-cost production is the problem for Symbian/Nokia in the mid-tier market.

        If HTC can start producing cheap Android phones…wait, forget HTC, let’s talk about cheaper Huawei or ZTE handsets…then, these mid-tier cheap Android handsets would bear all the advantages of the leading mobile ecosystem – apps, support, development, etc. And they would simply have cheaper hardware – processors, memory, cameras, no flash, screens, etc.

        Would a mid-tier user choose an old-school Symbian Nokia or a touch-based, modern Android when priced similarly?

      2. IMHO, Nokia has 2 choices:

        1. Go with Android, sell decent number of phones with decent margin, cannot be super successful, just benifit and contribute to the ecosystem, survival gaurenteed, super profits, not so much.

        2. Build Meego, or whatever they call it. Almost certain doom and gloom. If they choose this, they will have only themselves to blame. Symbian OS is now officially obsolete with Froyo on Huawei, how can they ever compete with Symbian at any price?

    3. I can say that with Android , any company can survive.but can not sustain profits in long run. At least, Nokia is no where near there. I think Android(Google)needs Nokia desperately than Nokia needs android.
      Derek, I think low cost production is possible with Symbian ^3.Symbian is made for low cost HW requirements.
      With android on mobile phones, Google have limited advertising profit than android on tablets,laptop or desktops.
      Derek, when you are saying old-school Symbian Nokia, that Symbian is from 2001 to 2005. After that lot of changes happened and happening. even i would say with that kind of old school Symbian, Nokia can manage to sell phone lower than android phone. And most important is, when you go to shop, no body goes and ask give me android phone, give me Symbian phone.
      Again if Huawei or ZTE start competing with HTC, Motorola. I wonder at what margins all these companies can sell phones for survival.
      Yes, Ecosystem is important, but then there are limitations on mobile comparing desktop/laptop like experience. Full use of mobile will only possible when you are travelling. Other than that for day to day life. Moderate ecosystem is enough. ( may be i am wrong in this , but this is just what i think from average user perspective)

  3. Apple pulled the control over software development away from carriers and google is pulling it away from handset manufacturers. Motorola can’t compete with Apple on hardware + software, so they don’t necessarily have an alternative to Android.

    That’s not to say they aren’t going to do well riding Android into mobile computing commoditization, but I think we’re headed to a place where handset manufacturers will be almost exclusively producting hardware, like with the desktop.

    1. huh, carriers suck and never had control over software development. they sourced devices to hit price points and never really knew the end user’s needs.

      1. Slim.

        You should consult someone in the telecom industry. You’re wrong. Carriers had always exerted tremendous control over the software AND hardware.

        Apple was a turning point for that control, and Google only gained their control because carriers and handset vendors were desperate for an decent competitive response to the iPhone.

        But you’re right that they were out-of-touch with the end user’s needs.

  4. All handset manufacturers who are using android has lost their identity. There is no compelling reason for a mobile buyer to switch from HTC to Motorola to Samsung to LG. Everything looks same. They only differ in cosmetic UI change. otherwise all are same.

    i belive all android supporting companies are just sales agent for google services. People will get boared after some time.

    Even if you say that apps will make difference between two OSes. I think average user use 10-12 apps regularly. Which are available/will be available on all the platforms.

  5. There is a huge, HUGE difference in Android and the RAZR…

  6. An Alternative could be windows Phone 7. I think Motorola will be wise to have 2 OS options. HTC does.

    Also, Moto needs to focus on reducing its manufacturing costs and cutting its product development time. HTC has those benefits because of its roots as a contract manufacturer..

    1. Kevin C. Tofel ST Tuesday, July 20, 2010

      Given Motorola’s prior partnership with Microsoft on a few WinMo devices, you raise a good point, ST. And really, now that webOS is off the tablet, Moto doesn’t have any other options (aside from it’s own OS): webOS, BlackBerry, and iOS4 aren’t available to build handsets around.

  7. Himanshu Khanna Tuesday, July 20, 2010

    Moto’s dependence on Android is good and bad. Its good as pointed out in article, that it does not have to spend money on OS. And its bad as pointed out in some comments is lack of differentiation.

    However, I think that Android is a good initiative for the manufacturers. If you look at the competition in the cell phone world, you have Apple, Android, Palm, BB, Symbian/Nokia and Win Mo (6.5/7). Given the choice, at best you can have 6 killer phones with top of the line hardware married to these OS. You can take out Apple, BB and Palm out the window as OS is bound to the manufacturer. For people like Samsung, Motorola and HTC, the choice is between Symbian, Android and Win Mo(I will talk about 7 as 6.5 has been outdated a while back). Win Mo 7 is not in the race yet and Symbian lacks a good developer ecosystem. Hence the only real choice is the Andorid.
    I agree that there is little to choose between android phones (EVO vs Driod X case in point), but there are other considerations such as carriers (CDMA vs GSM), form factors (sliders, keyboards, no-keyboards etc (you can also enter in back flip here)), screen size etc. for a manufacturer to distinguish itself. However, I think the real differentiation will not come from UI changes, rather from tweaking a phone for its target audience. If I was Motorola, I would develop a phone for the teenage audience (which will mean having apps and design for school, social networking, pop culture etc.), I will develop another phone for business people (Seamless MS office integration, intuitive apps for MS-exchange and stock exchange at the same time), a phone for photo enthusiasts(Samsung are you listening)( giving them better camera, developing drivers to take hands off from auto focus to manual etc). I can go on to find few more categories but I am sure you get the point.

    1. Nokia already announced partnership with Microsoft on MS office front on Qt phone. I think i will rather like to use term Qt phone than Symbian. They have this advantage.
      So Motorola’s only option is WP7 os in premium space.
      So called social phones (moto blur,kin) are failed in the market.
      With Qt, it is relatively easy port Linux apps to Symbian. Plus Symbian already have advanced JAVA support for so many years, so i think it will be easy to port future android apps to Qt phone. I also heard that Qt is going to support official android app development suite.
      I think when you say apps, i will say to be specific, games on all OS will make difference. I think game apps are most variable apps. Otherwise most of favorite the apps are available on all os.

  8. What Android has done is “commoditize” the whole space of Android phones.

    Hardware look, specs, and marketing are now the differentiators. Minor nod to the customizations.

    So for those on the Android bandwagon, they’re playing the same game as did the RAZR. Why did the RAZR sell? It looked cool and stuff.

  9. Very nice article, Kevin. Thank you!

    Finally something different than just the techno hype admiration of a big touchscreen.

    A question bothers me, though, when it comes to Motorola.

    If you look at the timeline of their most recent “blur” phones, starting with the cliq, the cliq xt, the droid, and now the droid X, there is a recurring problem.

    Motorola tried to differentiate itself from other manufacturers by implementing the Motoblur software that turned out to be barely more than a cute gadget for teenagers.

    But all the “blur” devices show something in common: They never get the OS updates because of “blur” interferences.

    Motorola customers are angry, and voice their concerns all over the internet because they have been left behind with their phones. Just research the Motorola Facebook groups, and read the comments. Even on the Motorola official group , every other comment is “where is my update???”.

    The reason why the updates are never coming to Motorola phones is unknown, as Motorola is showing negative communication skills.

    Some say it is because of the blur issues, which might be corroborated by the shrinking portion of blur software in the new devices.

    Another, and popular, explanation is that Motorola never intended to update the phones in the first place, preferring the option of rolling out new devices instead.

    The cliq xt and the droid, for example, are very similar in hardware capabilities. But the cliq xt, which came first, is stuck on android 1.5. When the time came for the promised 2.1 update, the Droid was launched, and the update pushed back to the end of Q2 2010. Then Droid was promised a 2.2 update, but when the time came for Froyo on the Droid, the Droid X rolled out, and the 2.2 update has been pushed back, just like the update for the Cliq.

    Of course, private parties are “hacking” the systems and writing new roms, so people can install their own upgrade (there is a 2.2 rom for droid, and a 2.1 eclair2cliq rom for Cliq).

    The final “proof” of Motorola’s “no update strategy” may be the improved “efuse” installed on droid x.

    No more “do it yourself” updates allowed, Motorola has put its Droid X under lock.

    In conclusion, while Motorola is trying to come back on the Market by means of a heavy android usage, it is also working against the whole Android philosophy (open handset theory and constant amelioration of the OS), thereby alienating a lot of its customers.

    As customers get more and more educated on Android, and more and more aware of complaints on previous handsets, the Motorola strategy looks very much like a direct run for the wall.

    Have you heard anything about the updates issues with Motorola? What is your opinion on that?

    Thank you again for your articles.

  10. Substitute “Dell” or “HP” for “Motorola”, and “Windows” for “Android,” and you have the beginnings of a framework for deciding how things will work out for Motorola. An incomplete one, of course, since carriers will have huge influences in the US, and since there is far less opportunity now for peripheral sales.

    It seems like apps will drive a significant portion of hardware value, and apps markets will see the same network effect advantages that helped Windows consolidate market share. There’s probably not much room left for non-Android, non-IOS operating systems, especially when you consider the advantages of purchasing once and having an app available on your tablet, phone, etc. HTML-based apps may change this, and it seems like HTML apps should eventually be able to manage the sophisticated permissions (personal data, location, HW services) now managed by native apps.

    In the short term at least, hardware features will provide room for product differentiation. Look for HTC, Samsung and others to purchase technology companies (such as Refocus Imaging?) to add unique features.

    Will manufacturers focus on overseas markets where carrier influence is less? I don’t know enough about the opportunities there.

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