When it comes to Mobile OS (operating system) strategies, $AAPL & $GOOG are on two extreme sides of the spectrum.
$AAPL’s iOS is a closed ecosystem. They do not allow other companies to use their software in their products. They create the hardware, the software, the finishing touches – everything. This strategy will typically turnout to be an all or nothing strategy. For the time being $AAPL is the all, while others like $PALM & $RIMM turned into (practically) nothing.
$GOOG’s Android on the other hand is the epitome of an open ecosystem. Not only can others use their platform, they do so for free. The reason $GOOG does this, is to enlarge their ecosystem. The more people use Android the more money they’ll supposedly make on things like apps, search etc. In regards to the actual product though, most companies using Android actually pay $MSFT a royalty (because of patents) not $GOOG!
One can (and many do) argue the merits of either of these strategies, and I think it’s fair to say both make sense.
Where however does $MSFT fit it? Their strategy seems to be confusing to say the least. $MSFT historically has been a software developer – selling their software to as many hardware partners as possible. They obviously wish they can do the same with mobile, but why would someone pay for their (so far) inferior product when they can get a better one (Android) for free (or small royalty)?
This is when $MSFT had to work at a major deal with $NOK. Since then several other handset makers have announced some windows phones as well. It is unclear to me (and would appreciate if anyone knows more), if and how much the other manufacturers (HTC, LG etc.) are paying $MSFT for the use of the software.
If it stopped there, things would still make sense, but then $MSFT came out with a huge bombshell. While it was covered by many, and many were surprised, I think the magnitude of this move – the 180° change in direction -is being downplayed/ignored by many. $MSFT announced the surface – for the first time ever – they’re creating their own hardware. They have since hinted (not as surprising at this point) that cell phones and other hardware will follow.
Let’s think about this as a business, with the major focus on risks.
Look at $AAPL and look at $RIMM/$PALM. It obviously seems farfetched to think $AAPL could end up like them, but it is a possibility. Carriers don’t care for $AAPL products (lower margins), neither do most suppliers (for the same reason). They don’t have real partners. They’re a closed ecosystem. It’s them vs. the world. (Obviously there are many developers that can be considered partners (suppliers and manufacturers too) but who’s to say that they wouldn’t be better off making apps (supplying and manufacturing) for $GOOG’s hardware partners)?
So while I’ve written in the past about The real Bull / Bear case on Apple, Inc. - I’ve come to realize that even in the bull case, where you look at $AAPL as a software company – it’s still more risky than what people believe – because their software is inherently reliant on their hardware! PLEASE go read that article, and re-read this last sentence.
So with $AAPL strategy – huge risk, but huge reward potential.
On the other side is $GOOG. It’s true they don’t make any money every time an Android device is sold, (let alone $AAPL type of money,) but they do however have an ever-growing market share because of this, and their partners not only depended on them, but would do anything to make sure they succeed. Where would Samsung & HTC be without Android?
So while $GOOG’s reward isn’t nearly as large as $AAPL’s (even the extreme bull case with Android), their risk is much smaller.
Which brings me to $MSFT. What are they thinking? If they’re truly going to be entering the world of hardware, what will happen to their partners? Why would HTC continue to build Windows 8 phones that will directly compete with the company who makes the software? Will $MSFT allow competing products to be cheaper/better than their own?
The way I see it, is that if $MSFT enters the hardware space, they either have to compete fairly with their “partners” forcing them into a typical “commoditized” business (hello $HPQ $DELL etc.) or they have to take full control like $AAPL.
So will $MSFT get into the hardware business just to crush their own (great) profit margins? Then what? Crush their once partners – now competitors?
The easiest answer I can come up with is two simple words – Steve Ballmer. This won’t be the first nor last thing he does that I don’t understand.
(And yes, $GOOG has their “own” Nexis phones as well, but it isn’t really theirs (Samsung manufactures it), and they’re not competing with their partners on it. This is also the reason I believe $GOOG has gone through great lengths to keep $MOT a separate entity/subsidiary.)