Google Mobile OS Competitive Strategy - May 2010

Competitive Strategy Group, May 2010

Rajeev KalavarAdam Rahman

Diana TsaoSrujana Vallabhaneni

Slide 1

Mobile OS Strategy

Primary Sources / Interviewees

• Subir Jhanb Google, Android Engineer

• Herman Ng Google, M&A Finance Manager

• Jerry Denton* Google, Marketing Director

• Jahanzeb Malik Qualcomm, M&A Sr Manager

• Bradley Layous AT&T, Chief-of-Staff

• Gregory Hoffman T-Mobile, Finance Sr Director

• Hitesh Anand Nokia, Head of Strategy

* Name altered at request of interviewee for confidentiality

Slide 2

SmartPhone OS: Porter’s Five Forces Competitive Rivalry (HIGH)

iPhone (Apple), Symbian (Nokia), Windows Mobile (Microsoft), Research In Motion (Blackberry OS)

Slide 3

Complements (MED)

SmartPhone apps/handset, carrier plan, m-phone accessories, flash memory

Threat of Substitutes (LOW)

Need an OS to run Smartphone, especially with “open” handsets

Bargaining Power of Buyers (MED)

Consumers select from the many existing SmartPhone OS offerings. 

Bargaining Power of Suppliers (LOW)

Mobile OS designed and made in-house; minimal suppliers.

Threat of New Entrants (HIGH)

Most telecom / software companies have ability to enter. Many firms in emerging countries launching new SmartPhones with simple, reverse-engineered OS.

Google Mobile OS: Android• Android central to strategy• Tightly integrated with Google’s web product offerings

Slide 4

• Open Handset Alliance that sets standards for mobile devices; Initially 65 companies from across value chain

• It is Open Source and free to handset manufacturers

• Symbian (Nokia’s OS) has leading global market share (small in US)• Android small, but has highest growth rate of all

Slide 5

• Apple has had high growth and closing in on RIM. Extracts a significant portion of industry rents

• Mix of vertical and horizontal models within SmartPhone business

Nexus One Launch• Advanced features with 5 Megapixel Camera, 1 GHz

Processor, Google Android OS, GPS, etc.

Slide 6

• Low-key launch: little marketing, one carrier, unsubsidized $529.00 / unit direct-to-consumer model

• 74 days following launch, unit sales:• iPhone 2G: 1.0M• Motorola Droid: 1.0M• Nexus One: 0.1M

• Nexus One Purpose:• Example of Android fully leveraging Google product offerings

• Lift the innovation bar for handset manufacturers on Android• Google is signaling to Android ODM’s and Apple

Android Consortium vs Apple iPhone

Apple / iPhone[Closed Platform]Andoid-Based

Manufacturers

History repeating itself like Windows / PC’s vs Apple Mac?

Slide 7

Power of Brand

•Google's brand valued at $100 Billion,* greater than brands like Coca-Cola and Microsoft!

Slide 8

•Lends credibility to Android

•Handset manufacturers can leverage strong Google brand to market Android-based handsets

* 2009 Datamonitor report

Google’s End Game in Mobile

•Is it the Nexus One?

Slide 9

•Is it Android?•It is about controlling the Mobile Ecosystem

and eventually extracting majority of its rents through mobile search advertisements with its portfolio of Google products as search transitions more from desktop to mobile computing.

…No

. . .No

Recommendations

• Attract more handset manufacturers to Android

Slide 10

• Increase mobile application offerings– Make Android Market easier for developers to use & quicker app

approval process versus iTunes– Offer higher app sales cut to developers versus iTunes

Product Integration• Match or beat tight integration offered by iPhone/ OS X/ iTunes within

Handset/ Android OS/ Android Market combinations

Market Penetration

• In addition to mainstream users, target the enterprise / business segment

Recommendations continuedSlide 11

• Ingredient marketing: Cover portion of handset manufacturers’ costs (Intel Inside case)

• More integration in Google product offerings

• Continue building VoIP capability through Google Voice

Marketing

• Protect brand image in mobile

Leverage existing offerings

Questions?

Slide 12

Google vs Apple:Collaborators turn Rivals

1. Enter SmartPhonemarket

2. Acquire MobileAd company

3. Block Mobile Ad firm acquisition

5. Reject Google VoiceApp from iTunes

• Parallel between Google / Apple and Gillette /Bic case• Google does not have competitive advantage in hardware

Slide 13

4. Antitrust Allegations

Collaborators or Competitors?

06.07Apple releases iPhone

11.07Google unveils Android

10.08Google launches Android Market

07.09Apple rejects Google Voice

09.09Google CEO steps down from Apples board of directors

11.09Google acquires AdMob

Collaborators or Competitors?

01.05.10Google releases Nexus One

01.05.10Apple acquires Quattro wireless

01.22.10YouTube starts to rent movies.

01.26.10Google Voice in browser released

04.08.10iAd announced

01.10FTC investigating Google/AdMob deal

03.10.10Ads served on YouTube mobile

02.05.10Apple bans word “Android” from App store

05.10Apple to replace default search engine with Bing?

Google vs Apple:Mobile Strategy

Slide 16

Apple Google

Mobile OS Closed [OS X] Open [Android]

Primary Mobile Rents Hardware Mobile Ads

Partnership Limited [Primarily AT&T]

Numerous [Open Handset Alliance]

Customer Value End-to-End User Experience

Integration: Mobile OS with Google web product offerings

Online Store iTunes Android Market

Apps Offered 190,000 50,000

Smartphone / Mobile Trends

• Mobile phones have become like small computers• Features on Smartphones becoming “an extension

of your senses” with vision (camera), touch (screen), voice (speech recognition), awareness (GPS), etc.

• Consumers personalize their phones with applications

• Growth in mobile search outpacing traditional desktop search. Substantial shift in revenue source for Google: from desktop to mobile ads.

Slide 17

ComponentSuppliers

WirelessCarriers

MobileConsumers

MobileOS

Mobile Value Chain in US

Mobile RetailOutfits

Handset Manufacturers

Mobile Handsets (in general):

Wireless Carrierof Choice!

Nexus OneConsumers

AndroidOS (Google)

Google(online store)

Nexus One Manufacturer:HTC

Google’s Model (D2C):

Semiconductor Chips

BrandedCompanies

ComponentSuppliers

Semiconductor Chips

Slide 18

SmartPhone Hardware:Porter’s Five Forces Competitive Rivalry (HIGH)

Apple (iPhone), Motorola, Nokia, Samsung, Research In Motion, LG Electronics

Threat of Substitutes (MED)

Landline telephones, VoIP, PC, laptop

Compliments (MED)

Applications, carrier service plan, mobile phone accessories, flash memory, Personal Computer

Bargaining Power of Buyers (MED)

Consumers select from existing SmartPhone offerings.  However, many options.

Bargaining Power of Suppliers (LOW)

Mobile semiconductors and phone hardware becoming commoditized.

Threat of New Entrants (HIGH)

Most telecom companies have ability to enter. Many firms in emerging countries launching new SmartPhones.

Slide 19