OS Control and the Next Billion Smartphones

Mobile World Congress was last week and what we have gotten in exchange for mobile computing news is a stream of new operating systems. What we’ve added is Tizen, an operating system primarily being developed by Intel and Samsung, and Firefox OS, an operating system developed by the makers of Firefox browser, Mozilla Foundation. So let’s sum up what OSes we have now:

  1. Android
  2. iOS
  3. Windows Phone
  4. BlackBerry 10
  5. Tizen
  6. Firefox OS

When I made my list six years ago there were 10 operating systems. Six is definitely better than 10, so we have some improvement. Interestingly only two of these six where on the list six years ago (Android, iOS) and only one was shipping at the time.

There are two dynamics at work here causing a contraction and proliferation of operating system versions. The first is that so few companies are actually making a profit on their devices. The list, at most, is Apple and Samsung, and only Apple controls their OS. Everyone else in the industry is on the outside looking in, including last generation’s big winners Microsoft and Intel.

The second dynamic at work here has to do with a concept called “the second billion.” The second billion refers to the next billion users of smartphones. The first billion, you and me among them, are relatively affluent and can afford things like $500 devices and $100 per month data plans. The next billion, however, are living on something like $500 a year (at best). The kinds of plans you and I subscribe to are out of their scope. Given that they are all cell phone users, the race is on to convert them to smartphones. And to convert them, the race is on to drive smartphone prices down to US$50 or less.

This is why Mozilla thinks they have an opening with Firefox OS. “We’re not trying to replace Android or iOS,” said Mozilla’s Christian Heilmann at Mobile World Congress. Of course not. He’s trying to sell to the next billion customers, not to the ones that already bought. Selling to the next billion will mean cheap devices and Internet connections. Tizen, BlackBerry 10 and Firefox OS are all built on top of web standards (HTML5), too, to make it easy to create apps. After all, slap together some cheap hardware parts, put a browser on top of it, and call it an OS is the cheapest way to go.

The question is do any of these “second tier” players have a chance against iOS and Android? Apple is a tough nut to crack. The bet being made by pundits — and the reason I believe the stock price is dropping — is because it is believed that Apple won’t be able to make a high margin, low cost phone. But Apple is a mysterious company and I wouldn’t necessarily bet against them at this stage of the game.

Android could be installed on cheap hardware and there is already a huge build-up of apps and games. On the other hand, Android is showing some signs of weakness. Samsung, as I mentioned earlier, is one of the major developers of Tizen. Samsung, in essence, controls all the profits in the Android ecosystem but has continually worked on its own operating systems over the years. The question is why? And the answer is protection. Understand that Samsung and Google don’t trust each other. Understand that as long as Samsung’s main smartphone revenue stream is from Google’s Android, Samsung is under Google’s thumb. Understand that Google buying Motorola was an affront to Samsung. And know that Samsung doesn’t want to be controlled by Microsoft.

Huh? What? Microsoft?

Yes, Microsoft. Microsoft, you see, has patents that has allowed it to extract royalty payments from Android licensees. It is believed those royalties are as high as $15 per device sold. In order to sell to the next billion customers, none of the Android-licensees can drive a profit when 1/3 of the retail price goes to Microsoft.

Everyone in the Android ecosystem — everyone — seems to be looking for a way out. Samsung is working on Tizen. LG and ZTE are licensing Firefox OS. This doesn’t mean these OSes and these companies will be successful and that they are all jumping ship from Android. It only means that they are all trying to move onto an OS that each one can more completely control, an OS that doesn’t cost them $15 in licensing fees per each $50 retail device.

The world is shifting. As I look back on this post in another six years I’m certain I will see a limited number of surviving device manufacturers each using a very limited number of operating systems. Apple will continue forward with iOS. Nokia will be tied to Windows Phone and Blackberry tied to its OS. Samsung will control Tizen and Motorola/Google will ship devices on Android. Amazon will survive, of course, with its not-quite-Android version of android. Maybe LG or ZTE or someone else will survive with Firefox OS.

In six years will all these companies and all these operating systems still be around? I wouldn’t count on it. But what I would count on is a more siloed mobile world than the one we have seen so far, one where individual operating systems and individual hardware manufacturers are even more closely aligned than they are today.

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