Mobile phones: Where does the money go?

Android licensees risk the WinMobile Disease - analyst


One of the oldest mottos at Vulture Central is Show Us The Money. There's one even better, I think, which is Show Us The Profits. Are there any? If there are, where are they going?

At a stroke, this cuts through huge amounts of hype and puts entire industries (and, for good measure, almost anything WiReD magazine has ever endorsed) in a much clearer perspective. So have a gander at the following analysis of the mobile phone business - it's quite startling.

Asymco is a one-man analyst company operated by Horace Dediu, a former Nokia manager in Helsinki, erudite and informative with a good eye for history. Earlier this week he looked at the profits of the largest seven manufacturers, responsible for 80 per cent of the phones sold, over the past three years.

The trend indicated last year is now quite clear, with two North American companies capturing the lion's share of the profits. In Q2 2007, Nokia pocketed 63 per cent of profits; Apple and RIM just seven per cent between them. Wind forward three years, and Apple and RIM snag 65 per cent of the profits, largely at the expense of Nokia, but helped by the collapse of Sony Ericsson and Motorola, who are a tiny shadow of their former selves.

There's a conclusion to be drawn for Google and the Android licensees, thinks Asymco. None of the three leaders are likely to abandon their in-house platforms for Android, it's either inferior (to iOS) or (as with BlackBerry OS, Symbian or Meego) switching simply isn't worth it. So Android is left to target the very manufacturers who have been squeezed. And that in turn leaves them with some tricky choices to make.

Android is becoming a commodity platform, so they need to differentiate themselves from the rest of the Android rabble: we've seen Sony Ericsson, HTC and Motorola invest heavily in their own UIs. But because Android is a commodity platform, this investment isn’t worth it.

"The real challenge," he reckons, is that "partnership with defeated incumbents whose ability to build profitable and differentiated products is hamstrung by the licensing model and whose incentives to move up the steep trajectory of necessary improvements are limited. "

Mobile phone profits (EBIT) 2007-2010

Their fate, predicts Dediu, might mirror something quite familiar: "Android’s licensees won’t have the profits or the motivation to spend on R&D so as to make exceptionally competitive products at a time when being competitive is what matters most...the same lack of symmetry with licensed software vendor Microsoft is what led the failure of the same incumbents to make a dent in the industry with Windows Mobile [2003 to 2010]."

Ten years ago, this was always the fate that Symbian dangled in front of licensees tempted to follow the Microsoft path. Look at the PC business, they said, nobody makes any money. (Today, we know the PC business is an illusion, a polite fiction that behind the curtain is funded by Intel and Microsoft themselves.)

Symbian's proposition was that manufacturers could differentiate themselves at the UI level - similar to what Google preaches today. But this never really solved the profits conundrum either.

Maybe no platform company can ever offer a solution - today's bling, high-margin high-end phone will always going to be tomorrow's throwaway low-margin commodity, and the only way to keep profits coming in is to keep creating cool innovative things people want to buy.

Android’s licensees won’t have the profits or the motivation to spend on R&D so as to make exceptionally competitive products at a time when being competitive is what matters most.

An analysis of the smartphone business seems to put things in perspective quite nicely. ®

Related Link

'Android's Pursuit of the Biggest Losers' - Asymco

Bootnote

Apple doesn't disclose its phone earnings in such details as the other manufacturers, and it's even harder to deduce the operating margin if you don't know the overheads of things like iOS R&D, so obviously there's a fair bit of guesstimation here.®

Similar topics


Other stories you might like

  • Prisons transcribe private phone calls with inmates using speech-to-text AI

    Plus: A drug designed by machine learning algorithms to treat liver disease reaches human clinical trials and more

    In brief Prisons around the US are installing AI speech-to-text models to automatically transcribe conversations with inmates during their phone calls.

    A series of contracts and emails from eight different states revealed how Verus, an AI application developed by LEO Technologies and based on a speech-to-text system offered by Amazon, was used to eavesdrop on prisoners’ phone calls.

    In a sales pitch, LEO’s CEO James Sexton told officials working for a jail in Cook County, Illinois, that one of its customers in Calhoun County, Alabama, uses the software to protect prisons from getting sued, according to an investigation by the Thomson Reuters Foundation.

    Continue reading
  • Battlefield 2042: Please don't be the death knell of the franchise, please don't be the death knell of the franchise

    Another terrible launch, but DICE is already working on improvements

    The RPG Greetings, traveller, and welcome back to The Register Plays Games, our monthly gaming column. Since the last edition on New World, we hit level cap and the "endgame". Around this time, item duping exploits became rife and every attempt Amazon Games made to fix it just broke something else. The post-level 60 "watermark" system for gear drops is also infuriating and tedious, but not something we were able to address in the column. So bear these things in mind if you were ever tempted. On that note, it's time to look at another newly released shit show – Battlefield 2042.

    I wanted to love Battlefield 2042, I really did. After the bum note of the first-person shooter (FPS) franchise's return to Second World War theatres with Battlefield V (2018), I stupidly assumed the next entry from EA-owned Swedish developer DICE would be a return to form. I was wrong.

    The multiplayer military FPS market is dominated by two forces: Activision's Call of Duty (COD) series and EA's Battlefield. Fans of each franchise are loyal to the point of zealotry with little crossover between player bases. Here's where I stand: COD jumped the shark with Modern Warfare 2 in 2009. It's flip-flopped from WW2 to present-day combat and back again, tried sci-fi, and even the Battle Royale trend with the free-to-play Call of Duty: Warzone (2020), which has been thoroughly ruined by hackers and developer inaction.

    Continue reading
  • American diplomats' iPhones reportedly compromised by NSO Group intrusion software

    Reuters claims nine State Department employees outside the US had their devices hacked

    The Apple iPhones of at least nine US State Department officials were compromised by an unidentified entity using NSO Group's Pegasus spyware, according to a report published Friday by Reuters.

    NSO Group in an email to The Register said it has blocked an unnamed customers' access to its system upon receiving an inquiry about the incident but has yet to confirm whether its software was involved.

    "Once the inquiry was received, and before any investigation under our compliance policy, we have decided to immediately terminate relevant customers’ access to the system, due to the severity of the allegations," an NSO spokesperson told The Register in an email. "To this point, we haven’t received any information nor the phone numbers, nor any indication that NSO’s tools were used in this case."

    Continue reading

Biting the hand that feeds IT © 1998–2021