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Saturday, 9 January 2010

Sipping a can of Dead Bull

Google's Andy Rubin has been talking to the Wall Street Journal's Walter Mossberg about the new Nexus smartphone. Apparently, Google is planning to open some retail stores to sell the Nexus direct. 

Get the picture? First,  Google launches the Android platform and encourages the world's mobile companies to support it. Good thinking, that way you raise brand awareness and suck in legions of developers. Without developers the Android has as much fizz as a can of Dead Bull - which by all accounts is the favourite tipple of portfolio managers these days.

Then, as momentum builds you do what you were always planning to do anyway. Knee cap your customers by launching your own handset. None of this should come as a surprise. There has been a lot of hot air expended on the subject of smart phones. But one thing should, by now be clear. The Apple way - which is to be vertically integrated so you can control the product like a crazed control freak is the best way.

Microsoft might like to sing the old tune about horizontal value chains and how that worked best in the PC space. It is whistling in the wind. The smartphone is an embedded device, the PC by contrast is a generic device. A generic device is open, you can do with it what you will with it. You can run any software you want on a generic device. That's not the case with smartphones. You and I cannot take the lid off and write our own code. Instead, we have to get it from a registered supplier. Therefore, Apples plays the role of gate keeper in a way that Microsoft never could in the PC world.

The Apps Store has become the game changer. Just the other day LG Electronics' CEO said that the company was in a state of panic.   Finally, the penny has dropped even in Asia. We are living in the Smart Paradigm: content and applications is the key to hardware sales. Giants like LG and Samsung will thrive or die over the coming years on their ability to replicate the Apps Store. Don't hold your breath though, this is a fiendishly difficult trick to pull off. 

This is what makes Google's play so interesting. An Apps Store is really the marriage of software and content development with social networking. Therefore, the bigger your apps store becomes the less likely it is that a competitor will be able to build a successful one. Apps Stores, like any other networkable entity follow a power law - a tiny number will generate most of the revenue and control the market. Maybe just one or two - besides Google and Apple who are the other challengers? Nokia - possible but unlikely. A mobile operator - no way. 

As a character in the Wire might say - mobile handset industry has been played.