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Summary:

If the latest data is to be believed, the battle for high-end smartphones is essentially a tussle between Apple and Samsung. With China’s ZTE’s and Huawei’s aiming for the lower end of the business, is there is room for HTC, LG, Sony or Motorola?

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A winter ago, I postulated that thanks to Samsung’s ability to build and source mobile components — from memory to processors to screens — the company would be able to become one of the leaders in the smartphone ecosystem. The battle, in fact, would be between Samsung and Apple, something that we have reported multiple times over the past year or so. Lately that battle is actually between the iPhone and the Galaxy brands.

Last week my colleague Erica Ogg wrote that Samsung sold an estimated 87.6 million to 94.6 million smartphones in 2011 (though it made a lot less money than Apple, which sold about 58 million iPhones during the first nine months of 2011).

Of course, people didn’t believe me when I pointed out that HTC was about to hit the skids  — it eventually did — and that Motorola is going to become an albatross around Google’s neck. It will — and the missing profit targets are only a start.

“A Googorola vertically-integrated smartphone line could counterbalance Samsung’s influence,” said Jean-Louis Gassée, a former Apple employee and more recently an investor in technology companies. I don’t buy his argument. How is it that the company that was perpetually in trouble starts doing well because someone else bought it?

It may not seem obvious today, but in a few years, as the rest of the world moves away from feature phones to touch-enabled, Internet-connected phones, we will see Huawei and ZTE, two Chinese companies, go head-to-head with Samsung. And they are so dominant in Africa and parts of Asia that we are going to see them become major players in the low-to-medium end of the market.

With the emergence of Huawei (which launched a really thin and cool Android phone on Tuesday) and ZTE, which have their roots in the telecom equipment business, one should expect HTC and Motorola (and the rest of the wannabes like Sony and LG) to get squeezed out of the market. Samsung will become the high-end Android leader while the two Chinese companies will become low-end giants before they start their eventual march up the smartphone food chain.

Antonio Rodriguez, an entrepreneur turned VC (with Matrix Partners), writes on his blog:

What all of the talk of Android momentum and inevitability obscures though is that the dream of a common Android that developers can write/deploy apps to and users can become familiar with is burning. More specifically, three events in 2011 burned it and we’re now holding on to a charred corpse that is quite different: an Android so splintered that it will make the glass on your Galaxy Nexus S2 Prime Pie dropped on concrete look like an ice skating rink.

The three events: 1. Google buying Motorola and alienating all of the tier one handset makers (none of which to this day have the spine to state it publicly but all of which have now come up with their “plan B”), 2. Microsoft extracting licensing fees from these same handset makers in the form of IP indemnification and 3. Amazon shipping a wildly successful, yet unidentifiable, version of an old Android build over the holiday . . . and making it a wild success. Of the the [sic] three, #1 was completely avoidable but the other two may just have been the name of the game when there is so much at stake in the fight of who paints the interface for the next generation of computing.

These changes mean challenges for the developers who now need to make some tough choices. Over the holidays a developer friend asked me which Android his startup should focus its energies on. Since his company is making apps focused primarily on the U.S. and European market, it makes no sense for him to start obsessing about Huawei or ZTE, at least in the near term. Motorola and HTC are slip-sliding away.

My answer to him was to go for Amazon’s Kindle Fire for tablets and Samsung for the phones. Samsung and Amazon are both spending an incredible amount of advertising dollars to promote their platforms, and it makes perfect sense for small startups (depending on their regional focus) to tie their lot with them. Between those two platforms, he would be backing winners that would bring the highest return on investment for his little company.

That is, and will be, the reality of the Android ecosystem.

  1. Douglas McDonald Tuesday, January 10, 2012

    I’m not convinced that Android (except Amazon) is so fragmented that you have to choose particular handset manufacturers. You need to explain that in more detail.

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    1. Douglas

      I think the pain being felt by developers with limited resources is real. I am pretty sure large companies such as Evernote don’t have to play favorites, but if you are a team with a few people and bootstrapping, you need to make the right bets.

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      1. Om, I love reading your posts and I feel this post has some very solid points that I agree with. Designers I have listen to or talked to all agree that it is easier to develop for the Apple ecosystem. But, that said, I think that of the 100,000’s of apps on each ecosystem, 90% of them are not worthy of paying for or retaining for any length of time in my device. Almost all of the apps that I love have gone the extra mile and have stepped away from the lazy design/programming to work on all Android and or iPhone devices. If a company should make an app and it takes off and starts selling millions of downloads then I would expect that that developer would work on improving and updating the app to work with all the current devices and one in the future. Doesn’t matter the device, manufacture, ecosystem, or the OS.

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      2. I am a developer and there is no way I can recommend writing for Android yet. The fragmentation of handset (tablet) makers is a red herring. The actual problem is the fragmentation of Android OS versions. Do we write for Froyo? Gingerbread? Honeycomb? Ice Cream Sandwich? Last I heard ICS was on a total of 6%, Gingerbread on 55%, and Froyo on 30.4% of all Android devices with most phones and tablets not being upgraded. Of course, this will change over time but in my opinion, I don’t see manufacturers bending over backwards to provide an upgrade path when it is easier to sell their customers a new device. Android for the next year or two will be a moving target.

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    2. Agreed with Doug and other commenters. Not one person who raises this “argument” has ever shown me where on the Android Market I need to go to get my “HTC-only” apps, or where someone might go for their “Samsung-only” app.

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  2. Sorry, I must have missed this–what any of this has to do with the title of the “piece”?

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  3. I would have to disagree on HTC going under but android is fragmented to many forms of android for developers to work with that is why ios has more fluent apps imo

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    1. Todd,

      HTC is going to feel the heat on both ends – I have been hearing from a lot of my industry sources and the Samsung juggernaut is just that – juggernaut. I would respectfully disagree with you on this one point.

      Thanks for the comment.

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    2. The more fluent apps hysterical more to do with the stricter SDK of iOS v Android. Rubin and Duarte need to drop the hammer on Android devs.

      Theres too much differential aesthetically between Android apps and that needs to change. Some recent apps are still ugly as sin despite how much nicer ICS is compared to 2.3. I think app aesthetics should evolve as well.

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      1. *has more to do

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  4. Why would a developer need to choose particular handset manufacturers to cater too? The handsets are not the OS platform for which the developer would be creating the apps for and further more Google will be slowing the fragmentation of the Android ecosystem with ICS.

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  5. Great article. I think IP indemnification will play a major role in the profit equation. Feature driven Internet phones will be the norm, even in the Third World. But you didn’t address “who will by the apps.” A real cash cow for Apple, and the Third World is not a part of their market share. How do the other companies succeed at this?

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    1. Grafton

      Good points you raise – I have a theory but since it is just that – I am going to take my time and think it over before sharing.

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  6. Om, great article and spot on. We are seeing the same thing.

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  7. I think that just as we see and have seen PC manufactures come and go we might see Android manufactures come and go, esp if the market reaches 2-3 billion users.

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    1. Great analogy Mr. Anon!

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  8. As to why choose between HTC and Samsung, why is Google enforcing a common theme for ICS if there is no problem?
    I think what we have not seen yet and what lurks around the corner is the platform battle, from hubs to voice integration. Can Google control it or drop the ball as they did with Android the “standalone” phone[1]?

    For everybody’s amusement MG on Android, the years Google turned into MS:
    1. http://parislemon.com/post/15604811641/why-i-hate-android

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  9. christopherdorr Tuesday, January 10, 2012

    This is the smartest analysis of the Android marketplace I have read in recent months, in part, because it delves beneath the surface of the usual Android vs Apple theme that dominates the discussion. And it gets to the level of handset manufacturers and what is really going on with them. Thanks!

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  10. The big question for me is if Amazon will jump in with a phone – as the Fire has readily shown, they have the power to upend the market with prices that no one else can compete with. They’re already threatening to dominate the market for non-iPad tablets, and the Fire is rumored to be a mere prelude to higher quality devices.

    They have the ability to deliver a phone and the incentive. They’re vying to become a user’s primary content gateway and phones are only going to become more critical in that regard.

    I agree that Android is going to be dominated by a juggernaut and a few low-end manufacturers, but I predict that Amazon will quickly become that juggernaut. Google needs to figure out how to get the reigns back or else Android will turn out to be one big charity project for Amazon.

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    1. It isn’t clear to me what Amazon gains by creating a phone. The tablet makes sense since reading is going to move almost completely to ebooks in the near future. They have to make sure that they aren’t cut out by DRM and other monopolistic mechanisms.

      But a phone is a different proposition altogether. Do they create their own network? Buy T-Mobile maybe? Do they form partnerships with the carriers? Why would the carriers treat them as anything other than another Android phone. If the carriers are partners in the OHA, would they cooperate with Amazon who isn’t playing the Android sandbox?

      Unless there is some big win for Amazon that I’m not seeing, it doesn’t seem to make sense for them to jump into the phone market.

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    2. I may be wrong the Amazon Fire allegedly sold well because they are cheap and not because they are state of the art.

      Btw can an Amazon phone really beat the Chinese phone makers in price and technology I beg to defer.

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      1. Yes, I mentioned that pricing is Amazon’s strength. And yes, Amazon can beat anyone because they’re selling their products *below* cost (they subsidize the device, then profit off of ads and content sales). Combine that with their top notch software and hardware engineering and a prominent brand name, and it’s almost unfair…

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