For once, LG may beat Samsung

Samsung has been touting the latest strategy for Tizen — this time as an integrated OS for its smart TVs. It’s earned dozens of news stories this month, all tied to its promotional efforts for this week’s CES show in Las Vegas.

Samsung has always been better at announcing and publicizing Tizen strategies than it has been at executing on them. It did not skimp on the grandiloquent predictions when its original incarnation (then called Bada) was announced in November 2009:

Samsung Launches Open Mobile Platform: Samsung bada – The Next Wave Of The Mobile Industry
November 10, 2009
Samsung Electronics Co. Ltd., a leading mobile phone provider, today announced the launch of its own open mobile platform, Samsung bada [bada] in December. This new addition to Samsung's mobile ecosystem enables developers to create applications for millions of new Samsung mobile phones, and consumers to enjoy a fun and diverse mobile experience.

In order to build a rich smartphone experience accessible to a wider range of consumers across the world, Samsung brings bada, a new platform with a variety of mobile applications and content.
…
Based on Samsung's experience in developing previous proprietary platforms on Samsung mobile phones, Samsung can create the new platform and provide opportunities for developers. Samsung bada is also simple for developers to use, meaning it's one of the most developer-friendly environments available, particularly in the area of applications using Web services. Lastly, bada's ground-breaking User Interface (UI) can be transferred into a sophisticated and attractive UI design for developers.

Samsung will be able to expand the range of choices for mobile phone users to enjoy the smartphone experiences. By adopting Samsung bada, users will be able to easily enjoy various applications on their mobile.

Encouraged by Samsung, one analyst predicted that Tizen would make up “half of its portfolio by 2012.”

Instead, (according GSM Arena) only 11 bada models ever shipped — out of more than 3200 models during the past 5 years — before bada was discontinued in favor of Tizen — a merger of bada and the Intel- and Nokia-flavored mobile Linuxes (among others).

Samsung announced its first Tizen phone — the Samsung Z  — June of 2014. A defeatured version of the Galaxy S5, it debuted not in Korea — or North America or Europe — but in Russia, suggesting the company did not think it could compete head to head with the latest Android and iOS phones. In fact, it was even ready for a third world BRIC country: the release was cancelled due to a lack of applications.

At CES this week, Samsung announced that Tizen would jump species — from its viral reservoir in rare smartphones and smartwatches — and become the only OS it uses for its smart TVs. I had three reactions.

First, so what? Yes, as the leading TV vendor Samsung can push out lots of copies of Tizen. But does anyone care what OS is in their VCR, DVR, Blu-ray, TV or home stereo? (I care about the OS in my car stereo — due to cellphone compatibility — but that’s a story for another time.)

Second, Samsung is saying: “let’s ship a platform in a product category where no one cares about app availability.” In other words, it may never win developer support for Tizen — and thus a large assortment of apps — but on TVs, who cares?

Finally, while Tizen frees Samsung from dependence on the evil Google, is shipping Tizen an asset for Samsung — or a liability?

Under the hood, Tizen has a very robust Linux, reflecting bada’s 2011 merger with MeeGo, which in turn built upon years of work by Nokia (with Maemo) and Intel (with its Maemo fork called Moblin). (It also included the failed Linux Mobile standard, LiMo).

However, a robust OS under the hood means nothing if it has a clunky UI. Exhibit A is the Symbian OS with Nokia’s aged S60 UI; Exhibits B-Z are every incarnation of desktop Linux known to mankind.

Which brings me to the dark horse: LG. I hadn’t noticed, but two years ago LG bought webOS, the failed Palm smartphone OS that HP owned for three years before dumping it. This week LG announced it’s using webOS for its own TVs.

Almost six years ago, webOS was a really good smartphone OS. But despite Palm’s efforts to double-down on its modern OS, it wasn’t enough to save the company. Now, webOS has a $100+ billion/year company behind it — and unlike with OS — a large volume of shipping products where it can run.

With a product strategy that usually consists of copying Samsung — much like Panasonic copied all its Japanese rivals — LG is rarely thought of as an innovative company. But here, instead of copying Samsung by developing its own lousy embedded OS, it bought a good one.

Again, will it matter? Will the TV OS matter more than screen size, brightness or — most importantly for a commodity product — price? As a former software guy, I want software to matter in providing differentiation. But I’m not going to bet even one dollar of our youngest’s college fund on it.

Is Samsung the next Sony or next Apple?

Tonight I ended another quarter teaching MBA again at my alma mater, the second time teaching IT innovation strategy this year. There isn’t a great fit of the topic to my current employer, so it’s nice to be able to moonlight (with permission) to revisit the course I created at UCI more than 13 years ago.

The students did a number of final projects, and since I’ve been too swamped to blog here (while rarely blogging at my academic blog) — I thought I’d share a few observations here.

One topic that hit me near the end of the last class is that Apple sort of looks like the next Sony. Sony was the great consumer electronics innovator of the 1960s through the 1980s (Trinitron, Walkman) that failed to keep up its innovation as the rate of technological change and is now losing money badly in a commodity business. So with Steve Jobs gone, I have been wondering if Apple will also slow its rate of innovation and become an undifferentiated premium producer in a commodity business.

But my students suggest that however quickly Apple becomes a commodity producer, Samsung is getting their first. 2014 has brought various headlines about how Samsung’s smartphone market leadership is producing losses not cash cows.

By offering slightly nicer Android phones, Samsung is competing within a standard rather than between standards. So while Americans will pay a premium for minor improvements, developing country Android buyers are quite happy to buy Xiaomi, ZTE, Huawei, or some other generic brand.

Samsung does compete in some capital-intensive markets with high entry barriers, but (as with the DRAM of the 1980s) such businesses are prone to commodity price wars. Samsung’s attempt to create unique technology (notably Tizen) has failed: they are a long way from being the next Apple. It has a high rate of R&D spending but not a high rate of R&D outcomes.

Quoting from Geoff Moore’s book (a required text), the students recommend that Samsung compete on integration abilities. I think it’s a plausible idea (if they can ever learn to do UI and software) — they have an unprecedented scope of products, and so if anyone (beyond Apple) has the opportunity to do this, they do.

One thing that is clear: Apple is not the next Sony — yet. And this gives me a chance to quote from a newspaper clipping that I set aside a month ago. Here is an excerpt of an interview with CEO Tim Cook:

MR. [Gerard] BAKER: I want to ask about some of the broader strategic questions for Apple. This phenomenally successful iPhone, which continues to churn out extraordinary profits. You’ve got a very high margin, relatively low volume in terms of total share of the smartphone market.

Now you’re about 15%, 16% globally of the smartphone market. That model has been compared to the Mac versus PC model of old. You have these beautiful devices, which you were first with, which people adopted very, very quickly, but which were a smaller and smaller share of the market.

In the end, the Windows model blew away the Mac, in terms of market share. Is that a risk here?
MR. COOK: I don’t think all market share is created equal. Our objective has never been to make the most. We’ve always been about making the best.

The analogy to the Mac isn’t a good one. It’s clear when you look back what was happening in terms of the Mac platform was there weren’t enough apps on the Mac platform. Customers began to leave, because there weren’t enough apps. Look at iPhone and iPad. I get more customer notes than any CEO alive, I’m sure. I’ve gotten zero saying, “You don’t have enough apps on your platform.”

So Cook makes two crucial points. First, for decades its identity and positioning have been about being better, not cheaper. Secondly, there is no evidence (even with Android’s superior share) that Apple has any problems with developer loyalty (at least in developed countries).

But the most important point is the one that he hinted at but didn’t finish: “I don’t think all market share is created equal.” Samsung’s smartphone profits are dropping while Apple’s rise. Every year, I have to remind my students that unprofitable growth destroys value for firms — if necessary, reciting the old adage “losing money on every unit, but making it up on volume.”

So while Sony is losing to commoditization, and Samsung is fighting it, Apple (thus far) is keeping at bay. For now, Samsung looks more like it's trailing Sony 10-15 years behind than it is catching up to Apple.

Pebble: it's about the apps

With a US ad budget approaching $1 billion, Samsung is now plastering the airwaves (including my Sunday football games) with ads for its $300 Galaxy Gear. Analysts say it’s a better ad than product.

My gripe is that it implies that Samsung invented the first practical smartwatch with its $300 Galaxy Gear. But any technophile worth his (or her) salt knows that the modern category begins with the record Kickstarter success story, the Pebble.

Still, Samsung’s ad barage is going to develop the product category and make people aware that this option is available. Today Best Buy gives online customers a chance to compare the various products side by side — and soon this will come to the physical stores, even if both products will be shut out of the Apple Store.

But what will the smartwatch pioneer do, with its $35m in outside funds dwarfed by the big boys? Pebble founder Eric Migicovsky says the story is in the apps:

The next step for us is how we can incentivize and encourage developers to hack on Pebble and create new interfaces. We’ve already started building them, but there’s a ton of hardware out there. There’s Fitbit and Jawbone and all this fitness stuff that’s really built on top of the exact same hardware that Pebble is built on, except those platforms are not open.

So with Pebble, say for example you’re a researcher working in a university on an accelerometer-based gesture app. Instead of having to build your own hardware, you can now build an app for Pebble and market it to the existing user base.

Not every potential platform attracts third party apps. If I were at Pebble hoping to be saved by apps, my first step would be to emphasize (and improve) the cross-platform compatibility against Apple and Samsung.

I'd also target the internal developers of big corporations. The major app vendors (e.g. iHeartRadio) will gladly do what it takes to provide compatibility separately with the Gear and (rumored) iWatch, but corporate developers would appreciate having one “watch” that supports both Android and iPhone clients.

More on Samsung's un-FRANDly patent terms

With the release of the (redacted) ITC decision June 4 granting Samsung exclusion of older iPhone models, Munich patent attorney Florian Mueller published two follow-up analyses Saturday of that decision. Both excoriating the five member majority and concluded that only commissioner Dean Pinkert understood the full implications of the case.

In his first posting, Mueller wrote

I'm outraged. The underlying rationale of the ITC ruling is a serious threat to innovation and competition. Among other things, it represents a radical departure from well-established antitrust principles concerning the illegal practice of tying (in this case, a Samsung proposal that required Apple to license its non-standard-essential patents to Samsung in order to get an SEP license). This totally runs counter to the ITC's mission to protect the domestic industry. In fact, no U.S. government agency has ever taken positions on standard-essential patents that could cause a similar extent of harm to innovative U.S. companies of all sizes in other jurisdictions. Basically, the ITC has adopted a blueprint that would enable other countries to engage in protectionism of the most extreme kind, allowing their domestic players to extort more innovative competitors from the U.S. and deprive them of intellectual property protection, while being able to point to a U.S. trade agency's opinion.

The posting summarizes Pinkert’s dissent. Here are a few key excerpts. From Pinkert’s footnote to the majority decision:

Commissioner Pinkert … notes that Samsung does not dispute that it has made FRAND licensing commitments in regard to the '348 patent, and, as explained in his dissenting views, he has considered the evidence before the Commission in the current phase of the investigation and has found the weight of the evidence to indicate that Samsung has not made FRAND licensing terms covering the '348 patent available to Apple.

From his decision:

I note in this regard that Samsung has made no effort to demonstrate that the license terms it has offered Apple specifically with respect to the '348 patent, or specifically with respect to a portfolio of declared-essential patents that includes it, satisfy an objective standard of reasonableness, has not identified a methodology for determining whether they satisfy such a standard, and nowhere suggests an intention to make them more attractive to Apple.
…
As the U.S. Federal Trade Commission has observed regarding commitments to license on a reasonable and non-discriminatory (RAND) basis:

RAND commitments mitigate the risk of patent hold-up, and encourage investment in the standard. [Citation omitted.] After a RAND commitment is made, the patentee and the implementer will typically negotiate a royalty or, in the event they are unable to agree, may seek a judicial determination of a reasonable rate. However, a royalty negotiation that occurs under the threat of an exclusion order may be weighted heavily in favor of the patentee in a way that is in tension with the RAND commitment. High switching costs combined with the threat of an exclusion order could allow a patentee to obtain unreasonable licensing terms despite its RAND commitment, not because its invention is valuable, but because implementers are locked in to practicing the standard. The resulting imbalance between the value of patented technology and the rewards for innovation may be especially acute where the exclusion order is based on a patent covering a small component of a complex multicomponent product. In these ways, the threat of an exclusion order may allow the holder of a RAND-encumbered SEP [standards-essential patent] to realize royalty rates that reflect patent hold-up, rather than the value of the patent relative to alternatives, which could raise prices to consumers while undermining the standard setting process.

The second article focuses on the antitrust implications of tying. His language is even more harsh:

In its ruling on Samsung's complaint against Apple, this ITC majority has taken the notion of intellectual property as an exclusionary right to such an extreme that the net effect is... the expropriation of innovators by extortionists. Anyone wielding standard-essential patents (SEPs) could abuse his gatekeeper role by requiring everyone else, at the threat of total exclusion from the market, to grant a license covering his non-SEPs as a condition for being allowed to operate at all. So a right to exclude could be abused in order to force others to give up their legitimate right to exclude.

Later on, he notes a relevant passage (cited by Pinkert) from a recent article by two of the world’s leading experts on patent licensing, lawyer Mark Lemley (of Stanford) and economist Carl Shapiro (of Berkeley):

While the issue is not free from doubt, we think that an offer made conditional on the would-be licensee licensing any patents other than standard-essential patents reading on the standard at issue is not a FRAND offer.

As Mueller concludes:

I don’t know any example of a case in which an antitrust authority or court of law considered anything other than a cash-only demand to be a FRAND demand. Again, a FRAND demand made at the threat of exclusion is something different than a voluntary FRAND agreement.

Collision of mobile business models

It’s no secret that automakers are building fancy navigation and entertainment systems into their cars. The LA Times this morning has a great article about how they’re not doing so well in competition with cell phone makers, who have products that are better, faster and cheaper.

At least in the US, the automakers want to control the customer, selling them expensive add-on systems; the most successful recently has been the Ford Sync, and before that the GM OnStar. But today the consumers who might buy such systems all have smartphones that do most of the same features (and more). They also run headlong into some of the freemium Internet business models (Exhibit A: Google Inc.) that give away stuff that automakers want to sell.

Here are a couple of great passages from the article by Jerry Hirsch:

[C]ar companies are spending millions of dollars developing interfaces, voice recognition software and navigation systems. Many of these functions either already come loaded on phones or can be downloaded at the swipe of a finger. Honda Motor Co., for instance, charges $2,000 for a satellite-linked navigation and traffic system on the premium version of its popular Accord sedan. But Waze, a division of Google Inc., provides the same functionality in a free app.
…
"People today bond more with their smartphones than their car," said Tom Mutchler, the senior engineer at the Consumer Reports Auto Test Center. "Car companies are going to have to live up to the expectations that come with that."

The whole article is recommended and doesn’t seem to be behind a paywall.

The article points out two problems the automakers face. First, in a race of innovative software between Ford and Apple, or Honda and Google, who do you think is going to win?

Second, you keep a car for 10 years and a phone for 2. So for the average consumer, which one is going to provide the better experience?

But the third problem Hirsch misses is that (as any strategy professor will tell you) Apple and Google and Samsung have economies of scale, and the car makers don’t. 700 million smartphones were sold globally in 2012, most using one of two platforms. In the US, 16 million cars were sold, with in-dash entertainment systems fragmented among a dozen makers.

As I teach my students, R&D is a fixed cost amortized as (total R&D) ÷ (number of units). Apple sold 137 million iPhones in 2012 (not counting iPads and iPod Touch using the iOS). Assuming GM or Ford gets 17% share and half buy the fancy infotainment system, that means about 1.4 million Americans are buying each car-based platform. (Toyota, Fiat/Chrysler and Honda sell even less). Given that’s two orders of magnitude less than the #2 smartphone platform, no wonder carmakers have to charge $2,000 for their systems.

It’s clear carmakers are going to lose this fight. Obviously, if you can’t beat ’em, join ’em — which is what Honda, Toyota and Hyundai appear to be doing. The article refers to the Car Connectivity Consortium producing the MirrorLink standard, which includes these three carmakers, as well as Samsung and HTC. In addition to these car companies, the CCC website also lists Daimler, GM and VW as charter members, with Ford and Subaru (“Fuji Heavy”) as a non-voting “adopter” member (BMW, Fiat and Mazda have limited voting rights). Nissan and Kia are nowhere to be found.

Volkswagen was early in partnering with Apple, so they may continue to lead on iPhone connectivity. Android compatibility could be a good foot in the door for the 3 Asian carmakers. But from the article and their market actions, it seems like some automakers (led by Ford) Ford are stuck in the slow lane trying to sell overpriced, soon-to-be-obsolete dashboard systems as though they can dictate what options American auto buyers will use on the road.

Time for patent war disarmament?

In this morning’s Wall Street Journal, columnist Holman Jenkins reports how Verizon proposed that President Obama block the ITC enforcement of an import ban over any infringement finding in the cellphone patent wars. The occasion was Apple’s anticipated victory over Samsung, but Jenkins suggests this should also apply to Samsung’s recent victory over Apple in a separate case.

Although the tables are turned,

Verizon's call for Obama intervention still has merit. The ITC ruling against Apple is rightly surprising and rightly troubling, reflecting mostly the deformities of the agency's own peculiar place in the patent wars.

The ITC is attracted to injunctions because injunctions are what the ITC is allowed to issue. Samsung would be very unlikely to win a ban on infringing products in the civil courts (where the parties are also fighting). For one thing, the Supreme Court has raised a considerable bar against such injunctions. For another, the patents in question are so-called standard-essential patents, which Samsung presumably is not entitled to exclude others from using, but only entitled to "fair and reasonable" compensation.

Apple’s loss and the call to change how the ITC impacts patent cases comes the same week that the White House announced executive orders and proposed legislation (based on academic advisors) to make the patent system less arbitrary and more predictable.

The pending ban only impacts the older model iPhones and iPads for the AT&T network. Jenkins notes that the problem is more urgent for Apple than many realize, because its cheaper obsolete model (the iPhone 4) is gaining market share on its latest but more expensive model (the iPhone 5).

Multilateral disarmament of all patent injunctions may be the best thing for the industry. However, from a legal and ethical standpoint, Jenkins minimizes how standards-essential patents are fundamentally different. Because of the way that 3G standardization works, Samsung has made promises for “Fair, Reasonable and Non-Discriminatory” licensing terms which means that it both promises to license the ’348 patent to Apple and to do so at a fair price.

In the US, Judge Richard Posner concluded that such patents should not be entitled to injunctive relief. The European Commission criticized Samsung for anti-competitive and abusive behavior for its efforts (eventually abandoned) to seek such injunctions.

Even more ironic, Florian Mueller reports that in February Samsung asked the ITC not to ban Samsung products from the US for violating Ericsson standards-essential patents. As Samsung argued before the ITC:

Like other SSOs, ETSI, IEEE, and 3GPP have developed IPR Policies designed to ensure that investment in standard-setting and standard-compliant equipment is not wasted as a result of essential IPR being unavailable or only available under unreasonable and/or discriminatory licensing terms.

Apple's loss is a loss for consumer and the industry

In a shocking decision, the International Trade Commission voted to ban import of old iPhones and iPads for infringing five claims of a Samsung W-CDMA patent. The band would impact the AT&T models of the iPhone 4, 3GS, 3 and iPad 3G and iPad 2 3G.

That Samsung sued (in retaliation for Apple’s earlier win) or won an infringement judgement is not what’s surprising. The surprise is that the ITC granted what amounts to injunctive relief for infringement of a standards-essential patent.

In telecom, standards-essential patents are different from any other type of patent. These are patents where a company (usually a handset or chip vendor) tells the standards setting organization (SSO) that they believe their patent is essential for implementing the patent.

Companies try to accumulate lots of these patents to force companies into cross-licensing (or royalty-bearing) agreements. Sometimes these patents are of dubious quality, as Rudi Bekkers & I showed in our 2009 study of W-CDMA patents.

However, in exchange for saying a patent is “essential,” the patent-holder promises to license their patents to all comers. As the main GSM (3GSM/W-CDMA) standardization notes the two declarations are inseparable:

declare your essential IPRs and to tell ETSI about your preparedness to grant irrevocable licenses on fair, reasonable and non-discriminatory [FRAND] terms and conditions pursuant to Clause 6 of the ETSI IPR Policy

That policy reads:

6.1 When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory terms and conditions under such IPR to at least the following extent:

• MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;
• sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;
• repair, use, or operate EQUIPMENT; and
• use METHODS.

The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate.

So for these patents, the only questions are a) whether or not a royalty is due and b) how much the price is. Once patent infringement is determined by a court, it’s a question of damages and not an injunction.

For this very reason, Samsung faces sanctions in Europe for similar efforts. The definitive site for telecom patent war news, FOSS Patents, reported in December 2012:

European Commission Vice President Joaquín Almunia already indicated that the adoption of a Statement of Objections (SO) against Samsung over its pursuit of injunctions against Apple based on standard-essential patents (SEPs) was imminent.
…
At close of business today [21 Dec] the Commission issued a press release announcing that Samsung has been served an SO, which is a preliminary ruling. This means we're past the stage of Samsung merely being suspected of abuse of a dominant market position (this theory is not based on Samsung's smartphone market share but on the leverage that SEPs give their owners), but that the Commission has preliminarily determined, after almost a year of formal investigations (which followed several months of preliminary ones), that Samsung has indeed committed abuse and should be sanctioned.

As blog author Florian Mueller has noted, Google has faced similar criticism for asserting the Motorola SEP that it bought.

The industry has noticed this case and the damaging impact of Samsung’s (apparently successful) legal arguments. Various industry groups filed briefs against an exclusion order. As Matt Rizzolo blogged on April 9:

We noted that several other parties also submitted responses, offering their views on how an exclusion order in this case might affect the public interest. These parties include:

• Cisco, Hewlett-Packard, and Micron Technology
• The Retail Industry Leaders’ Association
• The Business Software Alliance
• The Association for Competitive Technology

Each of these parties warns the ITC that allowing exclusion orders for FRAND-pledged standard-essential patents may have adverse effects on U.S. consumers and the U.S. economy, particularly future standards-setting activity.

This morning, Mueller noted that price is at the heart of the dispute:

Some will say Apple should have taken a license, but Samsung's initial 2.4% demand was far outside the FRAND ballpark (as a Dutch court said in a ruling), and it's not known what Samsung has demanded more recently (other than that Apple still considers it excessive).

And, as Rizzolo noted, the Cisco/HP/Micro filing proposed a mechanism for independently establishing a “reasonable” royalty.

The largest cellphone patent holder, Qualcomm, had earlier filed an opposition at ITC to Apple’s proposed interpretation of FRAND, but hastily withdrew the criticism of its major customer.

It’s not clear what the next step is. The ITC will seize the older (lower priced) models in 60 days, unless the president or a Federal court blocks that decision. Congress might reform the law, but given they can’t even resolve simple budgetary issues, they’re not going to pass a major piece of patent reform in two months.

When you've lost Anna and Mikko...

With its market share collapsing worldwide, Nokia has now lost its home market of Finland. Quoting IDC data, Digitoday.fi reported Tuesday that Nokia had a 33% share of the Finnish handset market in Q1 2013, second to Samsung at 36% (Apple is third at 14%).

Unwired View helpfully noted that Nokia had lost the Finnish smartphone market in Q3 of 2012, but sold enough feature phones to keep the overall crown — until now. Nokia’s home market is lagging the rest of the world by only a year. According to IDC data, Nokia lost the global smartphone market share in 2011 to Samsung and Apple, and the overall handset market in 2012.

Apple is also fighting Samsung in its home market, but managed to top the Korean maker in the crucial final quarter of 2012. The two companies are splitting all the net global profits of the global mobile phone market.

As Unwired View concluded:

73% of all phones sold in Finland in Q1 were smartphones. And apparently Finns love Samsung smartphones. That kind of says a lot. When not even patriotism can stand in the way of the Android onslaught, one has to consider what chances Windows Phone (in its current form and iteration) realistically has. You really can’t say that the Finns weren’t willing to give Microsoft’s new OS the benefit of the doubt. Or that they are somehow biased against Nokia, a company once synonymous with Finland in the eyes of many.

All in all, it looks like more rough sailing aboard the S.S. Ballmer.

Note on title: Anna and Mikko are popular names in Finland for girls and boys.

Google gets the competition it deserves

At this week’s Mobile World Congress, the conference is focused on what happens next, now after Android has captured the majority of the world’s smartphone sales — and continues to gain share. Some distant clouds are on the horizon.

The WSJ this week asked whether the leading Android vendor, Samsung, is going to assert its buyer power against Google.

Google executives worry that Samsung has become so big—the South Korean company sells about 40% of the gadgets that use Google's Android software—that it could flex its muscle to renegotiate their arrangement and eat into Google's lucrative mobile-ad business, people familiar with the matter said.

The story said “Android head Andy Rubin … said Samsung could become a threat if it gains more ground among mobile-device makers that use Android.” The WSJ followed up with a blog posting asking “Can Samsung’s competitors catch up?” while Fierce Wireless reported a Samsung VP’s denial that Samsung’s success threatens Android.

The original WSJ story speculated that Samsung might ask for better terms, e.g. preferential access to technology.

In some ways, we’ve seen this story before. Symbian was supposed to be an open multi-vendor platform, but when Nokia accounted for 80%+ market share, it transformed both the Nokia-Symbian relationship and the level of interest and commitment by other vendors to Symbian. Yes, Google’s much richer and more independent than Symbian ever was, but it faces some of the same pressures that Symbian did. As it is, Samsung is making more profit from Android phones than Google is (an interesting reversal of the Microsoft-Dell exemplar).

(Google’s downstream vertical integration into Motorola is offered as an insurance policy, but since Motorola has been slowly dying for a decade, it’s not clear how credible a bargaining chip that is.)

Similarly, Samsung continues to support Tizen (the embedded Linux successor to LiMo, Moblin and Maemo), and plans on offering a new phone based on Tizen this summer. Samsung is using Tizen as an upward compatible replacement for its homegrown Bada, but it’s unclear how credible a bargaining chip Tizen will be — since it hasn’t offered a new Bada phone in two years.

The other challenge to Android comes with the introduction of the Firefox OS. Since handset OS makers — Google, Apple, Microsoft — are promulgating their own browsers, apparently the Mozilla Foundation figures they need an OS to put their browser into people’s hands.

The Firefox OS won support from LG, ZTE, Huawei and Alcatel, as well as serious interest from Sony (née Sony Ericsson née Ericsson) — but not from Samsung. It’s expected to ship from 18 carriers in nine countries, but not the US until at least next year.

There’s of course the question whether the world needs another smartphone OS, let alone another open source OS (remember webOS). After Android (69%) and iPhone (22%) together have 81% of the market, no other platform has more than 5% — with Tizen and Firefox starting behind Blackberry, WinMo and Symbian. But there’s no guarantee that the most popular OS in the US or Europe will be the most popular OS in China, particularly when China’s two largest handset vendors are supporting both Android and Firefox OS.

So based on recent history, Google’s concern in developed markets should be Samsung throwing its market power around (either within Android or to a rival platform), rather than having Firefox (or BlackBerry or WinMo) catch it any time this decade. It needs monitor Tizen or Firefox in the BRIC countries, but that could just be a matter of providing extra tech support engineers for Huawei and ZTE.

Who's ready for the mobile web?

In January, Mike Mace and I both had an intuitive feel that the iPhone was going to change the mobile phone industry. Four months after the first iPhone shipped, I think our intuition has been born out to a greater or lesser degree.

Aided by very satisfied customers and the consequential word of mouth, Apple sold nearly 1.4 million iPhones in the first 94 days. This is AT&T's top selling phone (at 13%) and 4th overall in the US. Of course, Apple is not #4 overall since most vendors sell dozens of models.

In particular, one thing came through loud and clear last week at the CTIA Wireless IT conference (the premier mobile web conference in the US). Admirers and rivals admitted that Apple finally did a mobile browser right, and that accounts for much of its success (an advantage emphasized by their current advertising).

Web browsing solves the fragmentation of the US market, and provides a least common denominator between desktop and cellphone. If all app developers, content providers, cellular operators and mobile phone makers all agreed to use the web -- based on W3C and IETF open standards -- then the mobile Internet couldn't be any more open than that. This openness and ubiquity would eanble all sort of positive network effects to spur adoption, and leverage off the installed base of the wired Internet. Another factor for openness is that Apple's iPhone browser is based on WebKit, the open source project Apple created (from KHTML), which in turn reduces the barriers to imitation for its web browser. (In case web apps aren't enough, this month Apple adddressed the criticism about a "closed" iPhone by announcing it will release formal software development kit for native apps in February.)

If Apple establishes the browser as the key enabler of the mobiler Internet, how well situated are the major handset vendor? Based on Q3 2007 sales estimates, here's the list and my prediction:

• Nokia (38.6%). It ships more smartphones than anyone, owns S60 and the largest share of Symbian Ltd. It has been taking more risks with software than any other cell phone company, including its Maemo web tablet platform. Even if we worried about Nokia falling behind, they are already ready to match Apple by porting WebKit to S60.
• Samsung (14.7%). Has a wide range of software strategies, including Symbian S60, Windows Mobile and its own OS. Historically the Koreans don't grok software, but S60 will have a good browser and Windows Mobile could too (assuming Mobile IE is a fully compatible browser) -- so it may depend on the mix of software platforms they are selling.
• Motorola (12.9%). Like Samsung, Motorola has a mix of platforms: Windows Mobile, Symbian UIQ and its own solution (now shifting towards mobile Linux). Although in principle Linux should have a great browser, Motorola once said that the browser choice was up to the carrier.
• Sony Ericsson (9.0%). SE's smartphone strategy is tied to UIQ -- a Symbian OS layer that it used to own but is now going to share with Motorola. Since UIQ 3.0, UIQ has depended on the Opera browser, which has yet to inspire the enthusiasm of WebKit.

Any others? I think HTC will do well, because it thus far has made its impact with Windows Mobile, but now also has the prospect of the Google phone. On the other hand, while RIM has always understood software and has done well with e-mail, it is not known for its browsers.

Of course, this is a very US-centric view. For Europe, I expect browsers to be important too, but the smartphone market is much less fragmented than the US and much of the market can be reached by writing a native S60 application. Meanwhile, in Japan, the mobile Internet (as Jeff Funk as noted) is whatever DoCoMo says it is.

New realism in cell phone business models?

Sprint has a cute new convergence phone, the Samsung SPH-m620, which does a better job than most of trying to combine both telephone and MP3 player. Endgadget has a nice album of photos.

That Samsung (#3 or #4 in the world) and Sprint (#3 in the US) are trying to gain traction using an innovative phone is not all that surprising. I was also not surprised by Samsung’s attempt to adopt a more Apple-like product naming strategy with the new “UpStage,” or the complaint by at least one reviewer that they still don’t get software.

But what I found most interesting is that with the phone, Sprint promises over-the-air 99¢ music downloads, in direct competition with the e-commerce site formerly-known-as-iTunes-Music-Store. Sure, if you switch phones or want to play the songs on your home stereo, you’ll wish you had iTunes (or Zune or Rhapsody or Wal-Mart) PC-based downloads. But it’s still much more reasonable than the $1.99 per song of the Verizon V Cast; as an added benefit, it comes without the obnoxious ads. (Yes I know some services allow you to download a song to your PC and a separate copy to your mobile phone, while others allow you to sideload songs from your PC to your phone).

It would be good to see some price competition in music downloading services, if for no other reason than to convince the music industry to give up its long-held fantasy that it can raise digital download prices as an effective strategy for competing with free pirated MP3 files.

Technorati Tags: business models, MP3, music industry, Sprint, Samsung, smartphones

Who Invented the MP3 Player?

Who invented the modern MP3 player? One claim is Remote Solutions, although the earliest product that had a major impact was the Nomad from Creative Labs. It was Apple’s October 2001 introduction of the iPod that really caused the category to take off, although today there is plenty of competition from Sandisk, Samsung, or even Microsoft.

This morning my friend and co-author Rudi Bekkers forwarded a funny story. (Maybe not as funny as Sunday’s story, but certainly less likely to attract flames). As reported by Endgadget and TechDirt, a new company called “Texas MP3 Technologies” claims that the big players are infringing the MP3 chip technology it bought from SigmaTel.

Whether or not the earlier Alcatel $1.5 billion MP3 royalty award counts as a patent troll, this certainly does.

Technorati Tags: iPod, MP3, patent infringement, patent troll, Samsung