The announcement this week by Orange of it’s new San Francisco android 2.1 budget smartphone continues the recent trend of mobile phones moving away from the proprietary hardware/software combos that have dominated the market until recently.
Mobile phones were always a package of hardware and software that were both developed and manufactured by the same company, usually both were proprietary and not available from anyone else. This model worked beautifully for Nokia for years and continues to work for Apple, but Google’s android operating system changed the game, allowing anyone who could make hardware or afford to have it made to offer a handset with all the benefits of an open source OS without having to spend time and money developing software.
This is basically what happened to the PC market in the early nineties, manufacturers like IBM and Apple who made computers with proprietary hardware and operating systems came under fire from windows based PCs built with off the shelf components. The ability to produce and sell computers without having to spend vast sums of money on R&D lowered the barrier to enter the market and allowed for fresh competition, economies of scale and dropping prices. Whatever your opinion of Windows, selling an accessible operating system independently of the hardware revolutionised the industry, and the same looks set to happen to mobile phones.
Android was initially a little slow to take off, but once a few of the bigger handset manufacturers got on board it took off in a big way, allowing manufacturers to produce handsets with a familiar UI and access to apps and services without developing their own OS.
The Orange San Francisco is another step towards comoditized handsets – handsets that have little to set them apart from others running the same OS aside from price. With a suggested price tag of under £100, the San Francisco brings top end smartphone functionality at a small fraction of the cost of branded handsets.
Most manufacturers who use android place their own UI enhancements and branding on to the basic OS to differentiate their product from their competitors as well as styling the handsets, but how much value buyers will place on this remains to be seen.
Again comparing to the PC market, some manufacturers like Sony have succeeded in selling premium, branded windows based computers, but cost is still the main driver when people buy a computer. I suspect that the same will happen with mobile phones, branding and styling will obviously play a part, but if an “own brand” phone like the Orange San Francisco can provide the same functionality as a branded phone at a fraction of the cost buyers are sure to be tempted.
With intense competition and the event of mobile phone comparison sites, buyers are becoming more and more savvy when it comes to getting the best mobile phone deal, so networks are under pressure to bolster their tiny margins. Selling own brand handsets hasn’t been a particularly effective way of doing this up to now as customers wanting the full suite of smartphone functions plumped for the high end branded phones, but if own brand handsets can begin to deliver the performance of branded phones then perhaps buyers will be swayed.
If I’m right and the analogy with home computers holds, the winners will be the customers, who will benefit from dropping prices and more functionality in the same way they did with PC’s – in 1995 a basic windows PC cost in excess of £1000, now you can pick up a computer with hundreds of times the performance for under £500.
Component manufactures are likely to be unaffected – it makes no difference which handset an ARM processor ends up in, they still sell a processor.
Networks will benefit, own brand phones will increase their margins, but branded manufactures are likely to suffer, with little to differentiate their products from the crowd except price it’s hard to see how they will be able to maintain their margins.