Bullish on Cyanogen

I’ve spent a bit of time over the past few months digging into Cyanogen. Cyanogen is an Android ROM that now has aspirations to be a full mobile OS Android alternative. Cyanogen is running on devices such as the OnePlus and the Micromax YuPhone in India. I have many relationships with Silicon Valley VCs who often come to me for assistance doing due diligence on companies looking to enter markets I have expertise in. My insights and research are often part of the process investors use to decide whether to invest in a company or not. One of those I’ve provided assistance on is Cyanogen.

My overall thesis on the mobile landscape is that the dominant mobile operating system provider is at a crossroads. I wrote about this in my article the “Android Schism”. In short, Google is in a tough spot as they try to have Android appeal to both their most lucrative customers who are part of their profitable existing 1.3 billion active users. When we wrestle with the observation that the most profitable customers on the planet are all now online and using primary devices to access the Internet with smartphones and PCs, then we recognize all the growth of new Internet users is going to come from customers with less disposable income, less income overall and, from a monetization standpoint, dramatically lower average revenue per user.

Interestingly last year, in what seems to be counter to what many assumed about mobile growth, both China and India saw declines in smartphone shipments. So we ask ourselves why? The answer lies in the availability of low cost smartphones. Essentially, those who can afford smartphones have them. The rest will come online when prices get low enough. In many cases, we just weren’t there yet to continue the growth in those markets. 2015 will bring a different set of circumstances.

So why does Cyanogen matter? The bottom line is nearly every handset vendor I talk to is looking for every possibility to not have to partner with Google. When I say partner with Google, I mean with Google services not necessarily Android. So this brings us to Android’s fork in the road. In this next phase of mobile, the next two billion consumers we bring online are new to the Internet and the smartphone is their first computer. This customer group has dramatically fewer demands on their devices and only need a few simple apps and services. I could make a strong argument that Google’s services over-serve this next coming two billion. This is where handset OEMs see an opportunity to move away from what they view as a stranglehold Google has had on them. And I believe this opportunity exists for them as well. This is where Cyanogen comes in.

What makes Cyanogen interesting is that an OEM can choose to use them to create a mobile OS solution that includes Google services or not. Cyanogen offers choice in a way Google refuses to for handset OEMs. In this coming era, where the business model is shifting from hardware to services, choice is going to be essential. Hardware companies have to learn to be services companies and services companies have to learn to become hardware companies. When the bulk of new smartphones sold in the next four to five years are at prices less than $150, money will not be made in hardware but made in other areas. Cyanagoen offers handset brands, or services companies looking to get into handset brands, an opportunity to layer value on top of Android in ways Google does not want to allow.

The other key point for Cyanogen is how, outside a very small few handset OEMs, most have no software expertise. Companies like Samsung, HTC, LG, and Xiaomi, have some internal capabilities to customize Android software but most do not. Cyanogen offers hardware companies or services companies who want to get into hardware a customizable and turn-key solution with or without Google’s services. Outside of Cyanogen, I’m not sure who else is offering such a thing.

The counter to Cyanogen is that if Google figures this out and adjusts their strategy accordingly to offer a similar package like Cyanogen. Or if Google adjusts their policies and embraces open Android in new ways. However, what we are observing is Google is trying to control and actually “close” open Android with each new Android update. While Google thinks this deals with the open Android issue, it really just validates it and bucks the overall trend rather than embrace it. In fact, what Google is doing to control open Android is actually pushing more people toward Cyanogen than away.

One last point for Cyanogen. Google is not in China, yet the Chinese ODM ecosystem is essentially opening up the equivalent of contract manufacturing for smartphones. I’m fond of saying it isn’t the Chinese brands likely to go global but the Chinese manufacturing ecosystem under the guise of many local and regional brands. Wico in Europe, Micromax in India, SmartFren in Indonesia, and Cherry Mobile in the Philippines. Cyanogen has been able to penetrate the Shenzhen ecosystem both through relationships with Qualcomm and MediaTek. This is a huge deal, and one that nearly seals Cyanogen’s opportunity to actually be a third OS in this next phase of mobile.

I’m convinced Google is going to focus more on strategies to increase their monetization tactics of their existing, most profitable Android customer base. The only variable that could alter Cyanogen’s plans is if Facebook provides a similar solution. Yet, I think it is more likely Facebook is a potential Cyanogen partner rather than competitor.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

19 thoughts on “Bullish on Cyanogen”

  1. I think it is important to note the different business models of Google and Cyanogen, which means that the incentives of these companies are very different.

    Google monetizes everything by way of ad revenue based on data-grabbing and serves the interests of its advertising customers (i.e. they only receive pricing signals from their advertisers).

    Cyanogen, however, is catering to the needs of handset manufacturers, who have very different needs. Negotiating a price, invoicing the customer and collecting money imposes a wonderful discipline on any commercial activity and aligns the efforts of the supplier with the needs of the customer. By giving away Android, Google is effectively blind to the needs of handset manufacturers because they are not subject to this commercial discipline.

  2. I’m doubtful about Cyanogen as an alternative ecosystem, especially for the next 2b because:
    1- their origins are as a more nerdy and customizable hack of Android, not as an easier one. AFAIK, that’s still the case. Most of their installed base is as a substitute for OEMs who fail to update older hardware to newer versions of Android, or for users who want more control/options.
    2- they live on Google’s goodwill: Google have been energetically looking the other way about Cyanogen offering the GMS bundle. When there was a problem 1-2 years back about a potentially compatibility-breaking feature in Cyanogen (resizable windows), Cyanogen backtracked.
    3- What’s their upside ? Either they work as a consultancy and get per-job fees (and never get any rent), or they work as an ecosystem curator (basically displacing Google, at no benefits for OEMs).
    I’m sure OEMs would like to get Google’s slice of the pie. And Mediatek/Qualcomm’s (actually, more OEMs seem to work on that slice than on Google’s). And Apple-like margins. I’m not sure 1- it’s realistic 2- going with a 3rd party to achieve that makes sense.

    1. There are changes around GMS I can’t get into, which make what happens with Google less of a risk. Also, as I laid out, the things Google has been changing around the integration of their services for GMS devices, is actually pushing people away form them.

      I also can not underestimate enough how “over Google” nearly every global and regional handset OEM I speak with is. Those positioning to go after the third world realize there is little reason for Google services. Third OS for the third world is a good way to think about Cyanogen. I don’t think they have much to offer for the current 2 billion users, but I do think the way the needs and market for the next new two billion is much more in favor of how Cyanogen’s business incentives work than Googles.

      But again the point is about choice. A vendor can choose to use GMS services or not, they can choose to differentiate or tightly integrate a few core services into the OS like Facebook or WhatsApp for example, or not. Google is taking away choice, and in this next era where services monetization is the way forward not hardware, Google is not providing OEMs with what they need to move forward in that world.

      1. Would Amazon be open to OEMing their Fire Android ? They already have a viable ecosystem, they’d probably be happy with just Sotre (apps+media) revenues and leave the ads up for grabs, they are wwide or close enough…
        Actually, they’d be a good fit to work with Cyanogen: Fire-Android is rather backwards but has content, Cyanogen is the opposite.

      2. About choice, I’m not sure Google is taking away much in terms of technical capabilities. They had no issue with the Facebook launcher a while back. Customers did though, and it bombed utterly. OEMs are free to innovate, and have done so extensively (pen support, multi windowing, more detailed permissions, multiple user accounts, different content stores, pre-installed apps, different form factors…)

        I’m sure OEMs would love the rents that come with a content store and ads. But customers are no more interested in OEM-specific stuff than they were in carrier-specific stores and services. OEMs fancy themselves ecosystems curators, conveniently forgetting that for one Apple there are several Nokia, RIM, Palm, and that even Samsung isn’t pulling off Tizen. Most OEMs can’t even develop a single worthwhile app, let alone an ecosystem. Even their bespoke Launchers are mostly viewed as negatives, and no OEM app has ever broken out of their preserve into the wider Android world. They’d have more success emphasizing timely updates and a handful of utilities (app permission management, SD card integration, messaging app agregation come to mind).

        1. I think where our thinking is not lining up is the points you make work for the mature markets but not for the immature mobile markets, a la the next 2 billion I keep talking about. This market is so fundamentally different that I am convinced it is and will be extremely difficult to for Google to address them both with the same platform / strategy.

          Google is actually preventing some things. And my conviction is in many cases, not all but many, these areas where Google is preventing service layer add ons are exactly the areas people are looking to monetize / embrace a shifting business model for this next phase of mobile.

          1. If, as you continue to say that somehow Google will have trouble monetizing the next 5 billion due to the fact they’ll have very different needs and far lower purchasing power than the current users.

            how in the world will Cyanogen, Facebook, WeChat, Xiaomi, or any other tech company going to monetize these users in order to finance this wonderful Fork android OS without Google Play services that you are talking about ?

            If The answer is through services”. But which services? And how will they be monetized?

          2. It won’t be by ads since they are of no value to advertisers. Messaging is a key area, or micro transactions. Interestingly, I have been gathering quite a bit of data to confirm that the emerging market consumers care more about security and privacy than those in developed markets. Meaning security and privacy as a service is an interesting model. Also e-commerce as a service, even video as a service, banking is another. And perhaps dozens of other ways since we are in uncharted water.

            Facebook is in a much better position as I’ve stated. WeChat and Xiaomi may be China only. And I think Facebook has lots more up their sleeve to deliver. And Cyanogen charges a small per device shipped license fee. So they just need scale, which the Shenzhen ecosystem can get them.

          3. I’m with you on this. After Microsoft dropped out of the bidding, I don’t think Cyanogen will stand a chance. Samsung has hired away their best developers. Just like Apple bought out iOS jail break community’s Cydia developers. It’s really pretty much exactly the same scenario between both Cydia and Cyangen. Who both now have their own competition, aside from Apple and Google.

            I think bebajarin is simply barking up the wrong tree (for his Anti Google Hate as a largely demented pro Apple fan) on this Bullish on Cyangen business. Plus Cyangen only develops a fork of the Android kernel and it’s Open Source pieces and parts. It’s really no better than a vanillanized version of vanilla Android.

            Cynogen must also depend on others in the Open Source Community to develop some of their most important things like, PA Gapps. Which is the bridge between Stripped Down and Vanillanized Open Source version of Google’s Vanilla Android with all their services included. Without PA Gapps to go with Cyangen’s Mods (forks), no one can load up Google’s Play Store!

            Besides the fact, that they still are having problems with phone maker’s proprietary drivers they just can’t reverse engineer them. Just ask Firefox OS and Ubuntu about that? lol… You can have the hardware made for you or buy hardware already out there, but it will always include most likely a proprietary driver, that Cyanogen is forced to use a generic Open Source Driver for.

            Here’s a really good comparison for you, except it’s not as great of canyon as between Cyangen and Google; I’m a coder and graphics designer and have been since I was 16yo. I’ve worked in Open Source and my first work was within Novell’s SuSE Linux distro. In 2005 David Reveman was working on top of the X-Server… XGL… Compise CompositeManager. At the time…. like Google has down with Android, David Reveman closed down the project to the rest of the Open Source Community. He then only only re-opened a few weeks before he launched it.

            Meanwhile, just like with Cyanogen Open Source developers, one particularly talented dev by the name of Quinn Storm (similar to Cyanogen’s Steve Kondik hired by Samsung). She was an aggressive progressive mod seen as the Queen Developer of the Open Source community. She wanted Compise to not just run fast, but look great. We worked hard on settings panels and graphical special effects, that David Reveman hated. Because if it wasn’t plain jane practical he didn’t care about what it looked like or how easy the settings tools were to use. He was CLI (command line interface) all the way!

            Consequently… Quinn Storm split from Novell’s David Reveman’s Compise and forked it to Beryl CompositeManager. It really took off and fragmented the devs into two camps. Novell’s vanilla Compise and Beryl’s 31 Flavors of Compise CompositeManager. The revolt was on and David got left without any of the best Open Source developers like Quin Storm. Who tirelessly worked on the project only to get her marvelous work destroyed by other idiots in the community. Eventually though Quin and David made up and thus Compise-Fusion was born.

            Now if the fools at Cyangen were really into being successful, after already having the bled off their best developers to other Forks and Android device makers, their best option would be to pray that Google bought them out and absorbed them. But…. that just ain’t going to happen. The problems with being a fork of a fork of a fork…. infinity in the future is a prime example of why Linux has 1000’s of distros out there including Android. Which now the most successful Linux Fork in history!!! ;-P

            Why? Well having Google as your Papa and Mama means you’re basically a spoiled rich kid with the bucks to get you absolutely anything you wish for!!! …..including sucking off Cyanogen’s best developers. Just like Apple has been doing to Cydia!

            btw… benbajarin…. there’s what you should be a lot more bullish on… Cydia!!! 😀

          4. Would you have a concrete example ?

            Given that Google has no technical restriction except “don’t break AppStore apps” (which do require a lot of sensors, pushing price up by $15-ish) and no contractual ones except “feature our stuff prominently”, I’m coming up blank when trying to imagine something OEMs can’t do on either of those fronts. Maybe I’m missing a big “business model” issue, or a detail on the technical or contractual sides ?
            Payment stuff is wide open, Google have no product there. Customization (say for illiteracy) is too -and would be a nice way to sidetrack Google apps, if indeed it is the local preference-. The one thing I can imagine causing an issue is if carriers over there want store+ads+relationships exclusivity, like our carriers wanted 10 yrs ago. Customers over here voted with their $$, maybe the power balance is different over there with fewer $$ to vote with ?

          5. I was talking to some of the OEMs, and what is happening is that they are starting to have to accept all of Googles services as a part of GMS, not just app store. So Maps, ads, browser, etc., They can still add some of their own stuff but there are becoming more restrictions with each new release. I was told by several OEMs that with Android L, they noticed the most significant to date of required hooks from Google. Unfortunately they have to sign heavy NDAs regarding this contract so I could only get a few details. I read it 2 years ago but have not seen the required pieces.

            However, as I pointed out, those devices coming out of Shenzen that can be picked off a menu, rarely pass GMS. This is why over 40% of new devices sold into India do not pass GMS and are basic AOSP devices with google services installed after wards. This is where Cyanogen comes in.

          6. That’s weird:
            1- AFAIK, GMS has always been a bundle of apps, never just the store. This Ars column detail a 2011 OEM contract (4 yrs ago at least then http://arstechnica.com/gadgets/2014/02/new-android-oem-licensing-terms-leak-open-comes-with-restrictions/ ) that already lists “Set-up Wizard, Google Phone-top Search, Gmail, Google Calendar, Google Talk, YouTube, Google Maps for Mobile, Google Street View, Contact Sync, Android Market Client (not products downloaded from Android Market), Google Voice Search, and Network Location Provider.” The list is admittedly getting longer, but not in a “hey, it used to be 1 app, now it’s 20” way, more in a “hey, it used to be 10 apps, now it’s 15”.
            2- can OEM install “still some of their own stuff”, or “any stuff they want as long as it doesn’t break/change Google’s and the PlayStore’s apps” ? I’ve never ever read anything about Google preventing anything from OEMs as long as it doesn’t try to hijack others’ apps à la SuperFish, or otherwise breaks them.

            As for lots of cheaper phones being GMS-less, I can understand, GMS costs money for sensors and certification. I’m curious about how many do sideload the gapps (in which case they end up as GMS phones, maybe a bit wonky) and how many don’t.
            There’s another, separate issue for Cyanogen though: if they antagonize Google, Google could lock them out of the gapps (of course there’d be workarounds, but then anti-workarounds, then anti-anti… not workable, in the end). As long as Cyanogen fill a valuable niche (updating old handsets, helping OEMs differentiate on price or features…) I can easily understand Google has no issue with them. If Cyanogen start to divert revenue from ads or store, I think that’s what E. Schmidt would call an inflexion point in their relationship ^^

          7. To your last points, that is correct, but I’m also not sure that is an issue give that I feel Google’s services over serve the needs of the next two billion. We are already seen a massive increase in localized apps, localized app stores, localized services all spring up in each region. Those are more important to a region than Google’s services in the next two billion.

          8. One last thing, that might be confusing the issue: I read elsewhere (Ars probably, can’t find it again) that there are 2 levels to Google integration:
            1- basic GMS: you get the gapps, display them prominently, don’t mess with them, have all the sensors/radios for all playstore apps to work, and that’s it, and that’s what we’re talking about here.
            2- revenue kick-back: Google shares some of the long-tail user-generated revenue with to the OEM. That comes with more strings attached, I have no clue which though. But that’s a separate deal, not required to get GMS. I’m not even 100% sure this is real.

  3. For the most part I agree, but I would like to add one thing;

    You mention,

    Hardware companies have to learn to be services companies and services companies have to learn to become hardware companies.

    but then you also say

    outside a very small few handset OEMs, most have no software expertise.

    Since creating a successful service will also require a certain level of software expertise, I’m not sure that most handset OEMs can learn to be service companies.

    I would expect more along the lines of partnerships between hardware companies and service companies, where service companies would pay OEMs to make their services the default. Taking this to the extreme, this could end up in crapware. I hope they manage a more elegant solution.

    1. Isn’t that exactly what Google is doing ? They’re giving away a free OS + their own apps and cloud services + an ecosystem in exchange for being the default (not exclusive, and user-changeable) choice on new phones.
      That’s a payment in nature, not hard cash, but still a payment.

      1. Yes, exactly. Google is doing this for free, which as you say is a form of payment.

        However, I think that there are services that are willing to outbid Google. And it’s perfectly possible to outbid what’s free.

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