How Android Vendors Can Compete With Samsung

The initial title of this article was going to be “How HTC can compete with Samsung.” Then I decided to branch it out and make a point that is relevant for HTC but also for all Android handset vendors looking to compete with Samsung.

The public learned this week that HTC is losing key personnel at a rapid rate. Through friends of mine that worked there ((They no longer work there)), I had a sense this was coming for a while. For the past few years I have been watching the numbers of all the handset vendors and HTC was one that concerned me the most given the trends.

Unlike many other Android handset competitors, HTC only has one business, selling smartphones. Samsung, LG, Motorola etc., all have many other businesses to help them deal with growth or declines in other areas. Chinese competitors are simply focused on the low-end for the time being, but HTC is geared to play in the mid to high-end arena. Which is close to no mans land when employing HTC’s current strategy.

That is why in 2010, I wrote an article stating why I felt Microsoft should buy HTC. ((I still feel this is a good idea and likely)) I had concluded at that time HTC was in trouble. If I was them, or any other mainstream Android OEM looking to make a dent in Samsung’s 95% of the Android profit pool ((It is impossible for Android handset makers to survive competing for only 5% of the profit pool)) this is what I would do. [pullquote]deeply embed every one of their core services as if they literally own you[/pullquote]

I would surrender to Google. Stop trying to differentiate through software or UI value ad-ons and just simply make extremely elegant and innovative hardware, running the latest and greatest stock Android OS. Be vigilant about Android upgrades making sure your devices are always up to date in every area. Work closely with Google to deeply embed every one of their core services as if they literally own you. Focus on making great, elegant, affordable hardware and let Google take care of the rest. This way you can get a portion of the ad-revenues, and other service revenue sharing Google offers, and you have built your device and integrated Google’s services in a way to maximize Google’s revenue potential and yours. Be a Nexus device, without officially being a Nexus device.

This logic is absolutely counter to a market where one needs to stand out through differentiated software experiences. The problem is only Android competitor has successfully done this. I have championed against the Android sea of sameness and now I recommend pursuing it aggressively. People like HTC devices. Carriers like HTC devices. ((With a few exceptions of course, like the First)) As Avi pointed out on Monday, other than the iPhone, HTC devices hold their value longer, this is good for carriers. HTC makes great hardware and can still do well by focusing on great design and unique hardware innovations. They simply need to let go of the software and work closely with Google to ship the latest and great stock Android on their devices.

This is a template that could work for HTC but could also work for others. The bottom line is the current strategy being employed by Samsung’s Android competitors is not working. Stock Android is very good and arguably always the best Android experience ((As much as I applaud and appreciate the attempts to differentiate Android, I prefer stock Android every time)). If needed there is room to add some better apps, like a better exchange email app for example, but don’t change the interface and leave the rest to Google.

The HTC One: Setting a New Bar for Android Phones


I’ve been using the HTC One for a few weeks now as my primary smartphone and I have to say it is an impressive device on many levels. The HTC One is undoubtedly the best Android device I have ever used.

Through the years, HTC has shown that they can create extremely well designed and unique hardware. The HTC One is the pinnacle of the companies efforts and rasies the bar for all Android, and Windows Phone devices for that matter, going forward. The HTC One is the first smartphone that even comes close to the iPhone in terms of hardware and in some respects it is superior.

From my experience with the HTC One there were three key things that stood out to me.

Speakers and Sound

The speakers on the HTC One are incredible. Hands down the best speakers I have ever encountered on a mobile device. At first, I was impressed at the sound quality but questioned how practical the feature was. After a day or so, I quickly changed my mind and realized the feature was incredibly valuable. I started listening to music in more locations, contexts, and situations than before. Although I own the Big Jambox by Jawbone, I don’t always have it with me. Even when my family and I go to the beach or the park, we always try to pack lightly. Bringing the Big Jambox is not always an option. But I always have my phone with me and with the HTC One it’s like having a boom box with you at all times.

HTC includes the Beats audio feature which is a hybrid software and hardware audio processing solution. This feature worked well on the phone but interestingly the Beats audio feature was applied to audio that was being streamed to other devices. I stream music from my phone to my cars speakers frequently and I noticed the audio coming through my cars speakers was benefitting from the Beats feature.

HTC positions the enahnced audio and speakers on the One by calling it BoomSound. I’ve used many portable audio solutions and the distortion at high to full volume on many devices makes them simply unusable in louder or outside environments. This was my primary knock on the smaller JamBox. So I decided to test the HTC against other devices and this is what I found.

The iPhone 5 has great speakers but its max volume is 65 db and at that volume has minor distortion. My Retina MacBook Pro at full volume hits 95 db with excellent audio clarity and no distortion. The HTC One’s max volume hit 85 db with excellent audio clarity and no distortion. Suffice it to say, impressive for a mobile device.

Those stats aside, whenever I gave a demo of the speakers to friends and family, they simply said “wow.”


I think we would all agree that the camera on our smartphones may be one of the most valuable features. Every generation smartphone manufactures look to integrate better optics, sensors, software, and capabilities to the camera function. The processor and the camera are the two features that annually get signicant performance bumps.

HTC has always been pushing the camera envelope, mostly around megapixels, but you won’t find megapixel claims much with the HTC One and for good reason. Megapixels no longer matter. What matters now is what you do with those megapixels. HTC has packed a number of relevant features into the One that are typically rerserved for high end point-and-shoot and mirrorless DSLR cameras. The result is the best low-light pictures of any smartphone I have used. Low-light images are the trickiest to shoot with a mobile device and I generally travel with a DSLR for this feature alone.

Bottom Line is that the HTC One will rival many mid-range point and shoot cameras. Impressive for a smartphone.


I’ve always appreciated HTC’s attempt to add value on top of Android. Their strategy with the Sense UI has been solid since the beginning. As Sense evolved, it got more refined and more polished. The hardcore tech community has generally bashed Sense in this regard because HTC is not targeting the hard core tech community with Sense. They are targeting your casual smartphone users who don’t want to fuss with their smartphone but favor ease of use over heavy customization and software tweaking.

Many of the UI changes HTC made helped Android get out of the way rather than get in the way. And for the masses that is a good thing. I have not been shy about my frustration with Android as a UI but HTC has done much to add elements of simplicity and convenience to the platform. HTC’s much simplified app launcher is a great example of this placing most recent apps, a search bar, and quick link to the Google Play store all near the top of the app drawer.

HTC has easily created the best Android phone to date for the mass market. Its uses for portable sound and image capture are best in breed of any smartphone. Considering how the masses use their phones, those two features alone will stand out.

The HTC One will distinguish istelf from the pack with the hardware alone. The key for HTC and the carriers that carry it is to market it appropriately. If they can do this, then I think HTC could have a winner on their hands.

My personal preference is still to iOS. Using the HTC One with its larger screen size and iPhone like design convinces me even more that I want iOS on a larger smartphone screen than 4-inches. In fact several times I remarked to people that I wanted iOS on the HTC hardware. Specifically the speakers and the camera.

I give many technology recommendations to friends and family alike. I recommend different devices depending on the type of consumer they are. However, If someone were to come up to me and ask my advice on which Android smartphone they should get. I would tell them without hesitation, the HTC One.

Why Facebook Might Make A Smartphone

There have been a lot of rumors flying around these days that Facebook could be bringing out a smartphone of their own and that HTC is making it for them. Facebook has denied they would do a handset, but rumors and industry buzz around this continues to be strong and usually where there is smoke, there might be a fire.

It seems odd that given the competitive market conditions in smartphones that Facebook would even consider doing a smartphone, which is why some people I talk to dismiss the idea of Facebook even venturing into this crowded market. But I believe there is a scenario that could actually allow them to do something innovative and interesting even with the smart phone market competition at an all time high.

Today, most smartphones are based on a specific OS, whether it is iOS, Android, Blackberry, etc. And while a dedicated OS is important given the need for local apps, there is another way to approach this market, especially on a device that you know will be always connected to a 3 or 4G radio. I think that Facebook is smart enough to not get drawn into the iOS and Android wars and if they do release a smartphone, I believe it will be strictly an HTML phone. I have started to hear some rumblings that this is the approach they will take if they enter the smartphone market and in many ways, this would be a smart and potentially disruptive idea.

With iOS and Android, there are very rich development tools for creating apps and with both of these operating systems; local apps make a lot of sense since these apps can be used on things like the iPod or tablets with no Internet connection. However, anyone who has used apps on connected devices knows that it is the wireless connection that allows most of these apps to really sing and dance. But if the goal of Facebook is to strictly bring out a mobile connection to Facebook and have their smartphone serve as a portable vehicle for them to deliver a whole host of social, commercial, and media related services then HTML would work just fine on a smartphone that always has a connection.

This would mean that the Web browser would be the OS, so-to-speak, and all of the apps would come through this HTML browser. And since it would be always connected, it could deliver some pretty rich applications and services if done right. This is a rather intriguing idea since the operative word here is doing it right. Mobile Web browsers have come a long way in the last five years and are capable of delivering pretty good renditions of Web pages and Web apps even on devices that have localized apps. But if a browser is to serve mainly as the way to get apps as well as Web content then this browser needs to be pretty smart in its own right.

But with this move, Facebook would be really moving into new territory. Besides not having any history as a smart phone vendor, they would have to be dealing with the carriers, something that Palm has shown in the past is quite difficult to do right. And, I would like to think that if the only way to gain access to apps is via the Web, then the data deal I would want on a Facebook smartphone would probably need to be an all-you-can eat plan. A plus is that they don’t need a special SDK for apps and, at least in theory, any HTML app should work fine in mobile mode.

Now I have no clue personally if Facebook is really doing a smartphone even though there are a lot of things pointing to the fact that this may be happening. But I do feel that if they jumped into the smartphone market with an Android device it would just be another me-to smartphone.

On the other hand, taking an HTML approach with a smartphone that is really optimized for Facebook’s social experience and using it to deliver more personalized content, apps, information, and games through Facebook–could be quite interesting. It would allow this phone to have broad access to Web content and apps, and if done elegantly, keep Facebook users in the Facebook ecosystem longer and thus helping their cause of monetizing more apps and services tied directly to their mobile handset.

In a way, Apple already does this with the iPod, iPhone, and iPad in that they are all tied directly to Apple’s ecosystem of apps and services. However, Apple lacks the social connection that Facebook could have with their smartphone. And given the fact that Facebook already has close to a billion users, if they could get this smartphone priced cheap, their handset could be quite disruptive as it could take potential buyers away from Apple, Andrid and Windows mobile phone vendors who are especially coveting new users in emerging markets.

Facebook continues to be quite coy on whether they are doing a handset and their denials could be true. Also it would be a risky move given the current glut of cell phones and smartphones already on the market. But if I were a betting man, I would bet that they have surveyed the market for smartphones and, at the very least, have done some serious R&D around this idea of creating an HTML based smartphone that is tied to the Facebook ecosystem and their social community. And it would not surprise me at all if later this year they actually introduce something like this to capitalize on a growing Facebook community around the world that just might be interested in a Facebook smartphone.

HTC One X: A Big Win for Nvidia’s Tegra 3

At this years Mobile World Congress HTC made an announcement that I found interesting. They announced that their latest and greatest smart phone the One X will run Nvidia’s latest processor named Tegra 3. Granted, Tegra has been making news winning a number of handset and tablet OEMs but the news that HTC has chosen Tegra 3 is of particular interest. The reason is because HTC has largely been extremely loyal to Qualcomm. HTC has been one of Qualcomm’s most loyal customers, launching all their flagship top tier devices with Qualcomm silicon. Taylor Wimberly at AndroidAndMe asks a similar question in his post called “Is Qualcomm losing their strongman grip on HTC.

HTC choosing Nvidia’s latest Tegra chip is a testament to the quality of the Tegra 3 architecture. As I pointed out in my my column, The Arm Wrestling Match, both Qualcomm and Nvidia have different approaches with their multi-core strategies. Both companies have viable strategies when it comes to their approach to multi-core and both are gaining design wins all over the industry. However, for Nvidia and Tegra, winning an HTC design was the first in many key strategic steps for Nvidia to get their silicon into a wider portfolio of OEMs.

For Nvidia, and Tegra in particular, winning the HTC One X is a big win. It is a testament to the Tegra 3 multi-core architecture and something that I believe signals the breadth and depth of not only Nvidia chips in 2012 but that quad-core is the new dual-core in smart phones and tablets in 2012.

Nvidia still has work to do however, they are working to build LTE support into Tegra 3, which we expect to be finalized in devices in the second half of 2012. LTE support into Qualcomm’s S4 is still an advantage for Qualcomm since modem technology is core to Qualcomm’s heritage. This is why it will be very interesting to see how Nvidia integrates their Icera acquisition into the Tegra roadmap.

For Nvidia Tegra has always had the advantage as a solution for tablets in terms of performance and won many tablet design wins. I have been waiting to see how Tegra and in particular now Tegra 3 generates broader support with smart phones. It looks as though the win of the HTC One X may signal the upwards trend for Tegra 3 in smart phones.

However we slice the fascinating competition between Nvidia’s Tegra and Qualcomm’s SnapDragon chipsets the main point remains clear–Quad core chipsets will invade devices of all shapes and sizes in 2012 and beyond.

The Verge’s Vlad Savov recently interviews Nvidia’s Tegra GM Mike Rayfield on Tegra 3. I encourage you to read that interview here. Also Fierce Wireless had a great interview with HTC lead product designer on the decision to use Tegra 3 in the One X, you can read that here.

MWC 2012: Clear Android Differentiation and Other Trends

I suspect that each MWC will be better than the last. This show, I believe, is quickly becoming the leading industry conference for mobile smart device technologies. Therefore, Mobile World Congress will be one of the shows were we can expect to dig into the trends of our mobile computing tomorrow. On that point, this year a few things stand out.

Android Differentiation
Bloggers, journalists, some pundits, etc, mostly seem to believe the world would be a better place if Google’s OEM partners simply did not change Android and just shipped a stock OS the likes of the Nexus line of devices. Unfortunately in that reality hardware companies go out of business. Therefore differentiation is key if pure hardware players hope to stay in business.

Related Column: Dear Industry Dare to Differentiate

After seeing many of the Android device announcements from the leaders like Samsung and HTC, it is clear they are fully marching down the path of strategically differentiating from the pack. This I believe is a good thing all together.

Samsung for example is taking a stab with their Galaxy Note line of products at differentiating their device experience by pairing it with a companion pen experience. HTC did something similar with the Flyer but has seemed to have abandoned that path for now. For Samsung however, including the pen as an accessory (which is where it belongs) has opened the door to bundling exclusive and proprietary software in order to enhance the pen experience. Samsung is shipping with the Galaxy Note Phone (I refuse to support the Phablet term), and the Galaxy Note 10.1 tablet, Adobe’s touch suite of products like Photoshop and Ideas. Samsung is also including their own S Note application for note taking and other useful pen experiences. Samsung is wisely using this strategy as a key differentiator and if you watch any screen media you will see their marketing is fully committed to this direction.

HTC has also been going down this path and has now furthered their strategy even more with the new Sense 4.0 UI.

Beyond Samsung, pen accessories at large seem to be a trend around Android tablets. LG announced their Optimus VU with a pen accessory and I expect pen accessories to continue to be used as a differentiator for the time being.

It is clear at this point there will be no stock Android prioritized devices by the OEMs, thus I question the market at all for Nexus devices. Throw on top of that the fact that the stock Android devices running the latest release take over a year to roll out in any large fashion. John Gruber makes a great observation:

Best to think of today’s Ice Cream Sandwich as a developer preview of next year’s mass market Android phones.

Focus on Device Family Brands
The other trend I am noticing, which is also a positive sign, is that HTC and Samsung for example are focusing more on family lines of devices. Peter Chou of HTC during their press conference announced that HTC intends to streamline their roadmap and focus HTC innovations. HTC kicked this off by releasing a new family line of devices called the One “series.” Their flagship product is the HTC One X which sports the latest Tegra 3 chipset from NVIDIA.

Samsung also is heading this direction with the Galaxy S series, Tab family and now with the Galaxy Note. Motorola also hopefully continues this direction with the Razr family. And Nokia as well with their Lumia line of devices. This direction is needed within the industry in order to stop the absurd device naming syndrome that has plagued many OEMs. When you have dozens of devices in channel all with different names and marketing material blitzing consumers with dozens of device names etc, the landscape can look incredibly confusing.

By focusing on a family line of devices, OEMs can differentiation and then position those differentiating features within a family line of devices for their appropriate target audience.

All in all, I am seeing some positive trends coming out of MWC 2012 that encourages me about the state of healthy competition within the mobile smart devices landscape.

NVIDIA’S Tegra 3 Leading the Way for Smartphone Modularity

I have been an advocate of modularity before it became popular to do so. The theory seems straight-forward to me, in that if the capabilities of a smartphone were outpacing the usage model drivers of a rich client PC, then consumers someday could use their own smartphone as a PC.  Large displays, keyboards and mice still exist in this usage model, but the primary intelligence is in the smartphone then combined with wireless peripherals.  At this year’s Mobile World Congress, NVIDIA took us one step closer to this reality with their partners and the formal announcement of Tegra 3 based smartphones.

Tegra 3 for Smartphones

Tegra 3 is NVIDIA’s latest and greatest SOC for smartphones, “superphones“,  and tablets.  It has four ARM A9- based high performance, 1.5 GHz cores and one “battery saver” core that operates when the lowest power is required.  The fifth core comes in handy when the system is idling or when the phone is checking for messages.  Tegra 3 also includes a very high performance graphics subsystem for games and watching HD video, much more powerful than Qualcomm’s current Adreno 2XX hardware and software implementation.

clip_image004NVIDIA announced five major Tegra 3 designs at Mobile World Congress; the HTC One X, LG Optimus 4X HD, ZTE Era, Fujitsu’s “ultra high spec smartphone” and the K-Touch Treasure V8.  These wins were in what NVIDIA coins as “superphones” as they have the largest screens, the highest resolutions, the best audio, etc.  You get the idea.  For example, the HTC One X sports a 4.7″ 720P HD display, the latest Android 4.0 OS, Beats audio, NFC (Near Field Communication), and its own image processor with a 28mm lens to take great pictures at extremely low light.  You get the idea.

There is a lot of goodness in the package, but that doesn’t remove the challenge of communicating the benefits of four cores on a 5 inch screen device.

Quad Core Phone Challenge

As I wrote previously, NVIDIA needs to overcome the challenge of leveraging four cores beyond the spec on the retail tear clip_image002pad.  It’s a two part challenge, the first to actually make sure there is a real benefit, then to articulately and simply communicate that.  These are similar challenges PC manufacturers had to deal with.  The difference is that PC makers had 20 years of dual socket machines to establish an ecosystem and a messaging system.  Quad core tablets are an easier challenge and quad core convertibles are even easier in that you can readily spot places where 4 cores matter like web browsing and multitasking. Smartphones is a different situation in that due to screen size limitations, multitab browsing and multitasking rarely pegs a phone to its limits.  One major exception is in a modular environment where NVIDIA shines the most.

Tegra 3 Shines the Most in Modular Usage Models

Modularity, simply put, is extending the smartphone beyond the built-in limitations. Those limitations are in the display, audio, and input mechanisms.  When the smartphone breaks the barriers of itself, this is where NVIDIA Tegra 3 shines the most.  I want to be clear; Tegra 3 is a competitive and differentiated smartphone and tablet SOC without modularity, but is most differentiated when it breaks free from its limited environment.

NVIDIA has done a much better job showing the vision of modularity but its partners could do a better job actually delivering it.  On the positive side, partners are showing some levels of modularity. HTC just announced the HTC Link for the HTC One X, software and hardware solution that plugs into an HDTV where you can wirelessly mirror what is on the phone’s display.  It’s like Apple’s AirPlay but better in some ways like being able to project a video on the large display and do something different on the phone display, like surfing the web.  Details are a bit sketchy specifically for the HTC One X and HTC Link, but I am hopeful they will roll out some useful modular features in the future for usage models. Apple already supports wireless mirroring supporting games so in this way, HTC Link is behind.

What NVIDIA Tegra 3 Should Do

What NVIDIA’s partners need to create is a game console and digital media adapter solution that eliminates the need to buy an XBOX, PlayStation, Wii, Roku, or Apple TV.  The partners then need to attack that.  All of the base clip_image006software and hardware is already there and what HTC, ZTE, or LG needs to do now is package it to make it more convenient for gaming. This Tegra 3 “phone-console” should have a simple base near the TV providing it power, wired LAN, HDMI, and USB.  This way, someone could connect a wireless game controller and play games like the recently announced Tegra 3 optimized games in great resolutions with rich audio. The user would have the ability to send phone calls to voice mail or even to a Bluetooth headset.  Notifications can be muted if desired as well.  And of course, if you want to watch Netflix, Hulu, or Amazon movies it’s all there, too.  The alternative to this scenario is for a Wi-Fi Direct implementation that doesn’t require a base where the user can utilize the phone as a multi-axis game controller with force feedback.  The challenge here is battery life but the user can pause the game or movie and pick up phone calls and messages. This usage model isn’t for everyone, but think for a moment about a teenager or college bound guy who loves gaming, wants a cool phone, and doesn’t have the cash to buy everything.  You know the type.

Other types of modularity that NVIDIA’s partners must develop are around productivity, where the phone drives a laptop shell, similar to Motorola’s Lapdock implementations as I analyzed here. Neither the software, hardware, or price made the Lapdock a good solution, but many of the technologies now exist to change that.  NVIDIA’s Tegra 3 would be a great start in that it enables real multitasking when using the Lapdock in clamshell PC mode.  Android 4.0 provides a much more modular computing environment to properly display applications on a 5″ and 11″ display including scaling the fonts and reorienting windows.  The Motorola Lapdock used two environments, one Android Gingerbread a a different one for PC mode.  Unsurprisingly, it was a good start but very rough one too, with room to improve.

NVIDIA, the Silicon Modularity Leader with Tegra 3

NVIDIA with its Tegra 3 solution is clearly the current silicon leader to support future modular use cases.  They are ahead of the pack with their modularity vision, patiently waiting for their partners to catch up.  This was the most evident at CES where NVIDIA showed an ASUS Transformer Prime connected to an XBOX controller and an HDTV playing high quality games. They also demoed the Prime playing high end PC games through remote desktop. Now that is different.

The opportunity for HTC, ZTE, LG and potentially new customers like Sony, RIM, and Nokia is there, and the only question remains is if they see the future well enough to capitalize on it.  With all the complaints from handset vendors on differentiation and profitability with Android, I continue to be puzzled by their lack of aggression.  An aggressive handset maker will jump on this opportunity in the next two years and make a lot of money doing in the process.

Why Microsoft Should Buy HTC Not Nokia

I don’t want to be in the predictions business. I like being in the industry analysis business. However to be an effective analyst and in particular focus on industry trends like my firm does we need to not only analyze the current markets but what the future markets may look like as well. Sometimes we are lucky enough to have some of our forward thinking analysis come true.

When I wrote the column on why Google Should buy Motorola two weeks ago, it was part of my own internal excersise to anticipate possible scenarios based on which companies are more valuable competitively together rather than alone. We do this often because we do a great deal of competitive analysis.

As I stated in my Techland column last weekend, the industry has changed. With the announcment of the Google / Moto deal and the HP PC division spinoff, companies will be forced to opperate very differently if they want to compete and stay relevant.

It is inevitable at this point that we see more large company acquistions or mergers and/or more companies exit certain business’ to focus on more profitable ones.

As I stated above, some companies are more valuable and competitive together rather than alone.

Many believe that Microsoft should buy Nokia, including our president and my father Tim Bajarin. It is hard to argue with his logic or his historic background in the technology industry. In his article on the subject, he pointed out that a vertically integrated Microsoft and Nokia would have a better chance of competing with Apple and Google/Motorola in the future.

I can certainly see Microsoft buying Nokia, but if I was Microsoft I would buy HTC.

HTC Needs More Than Hardware

I’ve stated almost everywhere I write and give keynotes that making money on hardware alone in consumer markets is extremely difficult. If you don’t have proprietary value to add to your hardware to differentiate yourself in the market and drive extra revenue, then you have a rough road ahead.

HTC has always taken this approach and understands this. The problem is their software partners Microsoft and Google don’t want them customizing their software and makes it increasingly difficult for HTC to do so. I don’t see this changing anytime soon.

This is why many in the media have rightly made the point that HTC could benefit greatly from webOS. I completely agree, however it is yet to be seen whether webOS gets spun off with the hardware business. If it doesn’t then one strategy would be for HTC to license it, but again the question of differentiation will come up.

Microsft Needs More Than Software
I believe the trend to verticalization in this industry is real and signficant. The fact of the matter is optimizing software for hardware is a challenging task when an OS is licensed. Steve Wildstrom points out in this article the challenge with open(licensable) operating systems. Apple accomplishes this better than anyone because of their control of the hardware, software and services related to the Apple ecosystem. Apple’s model is closed but it is also a complete holistic ecosystem. And it is obviously working.

Microsoft has two of those three elements and if they want to control their own destiny they need to either enforce much more strict requirements of hardware or they need to own a hardware business for smart phones, tablets and possibly more.

I don’t think enforcing more hardware restrictions is the right path because it doesn’t allow for differention. Microsoft with Windows Phone and Google with Android are not positioned to help their partners differentiate. This is a strategy that will suffocate hardware only players.

The bottom line is that in the future consumers will gravitate more toward ecosystems rather than products. That ecosystem will consist of hardware, software and services.

Companies who orient themselves to build products will have very little consumer loyalty in future product decisions. Companies who build ecosystems will find more loyal customers year after year. In this column I point out why some ecosystems are more sticky than others.

HTC and Microsoft could together become a very powerful global player in mobility. HTC makes great hardware and has some excellent software expertise as well. Both benefit Microsoft greatly.

Competing with Apple is for many companies the worst thing to try and do. However if Microsoft bought HTC I would argue that together they have the best shot.

The Real Issue Behind the Android Lawsuits

In case you haven’t been following the lawsuit news closely, three major companies have been suing companies using Google’s Android operating system. The three companies behind the bulk of these suits are Apple, Microsoft and Oracle. The latest in the saga came down Friday when the International Trade Community ruled in Apple’s favor in its suit against HTC and several of their Android devices. The ITC ruled that HTC had indeed infringed on two patents that were specifically granted to Apple.

For a highly detailed analysis of the ITC’s decision I will point you to Florian Mueller’s Foss Patents blog and his post – ITC judge finds HTC in infringement of two Apple patents.

Also take a look at Fortune’s tech writer Phillip Elmer Dewitt’s story where he points out a tangible example of one of the patents use cases: Apple vs. Google: Inside an Android patent violation.

I’ve read at least a dozen articles on this subject over the weekend and many great articles have covered this from every angle imaginable. There is however one point i’d like to make that I feel is at the heart of the issue.

I have heard from a number of very sharp analysts and experts in our circles that these lawsuits against those who ship Android products are extremely serious. Everyone generally agrees that even though the lawsuits themselves are targeting those who ship Android devices, it is really Android which is the issue. Everyone also generally agrees that given the nature of the lawsuits from the current big three you would have to conclude that Android certainly does step on its fair share of patent infringements. In fact its hard to create a product in today’s times that doesn’t infringe on someones patents. This is why having a robust patent portfolio is key to so many companies since it allows them either patent protection or cross license opportunities when the inevitable patent infringement comes.

That being said what I feel the real issue behind the lawsuits is that Android is free. It’s obviously one thing to infringe on a companies inventions or innovations and then sell them but its another entirely to infringe on someones inventions and innovations and give them away for free. It sends the message that those innovations aren’t even worth enough to ask someone to pay for them.

Whether or not this was Google’s intention with Android will most likely never be known. Whatever the case my opinion is that the de-valuing of others inventions or innovations is at the heart of the intense lawsuits we are seeing come down with Android as the target.

This is not to say that these lawsuits would not have occurred anyway only that there is an intensity behind them that I feel is being fueled at least in part by the liberally giving freely of other people’s IP.

The Revenge of Pen Computing?

I’ll admit, when I heard about HTC adding pen capability to its tablet, I rolled my eyes and wrote it off. Then I watched HTC’s promotional video on the HTC Flyer and read comments from respected journalists and analysts and knew then I needed to try it out for myself. You see, I have been involved with pen-computing for 20 years, and I have the scars to prove it. Will the HTC Flyer usher in a new generation of mainstream, pen-based tablet usage models?

clip_image002 clip_image004

Cycle of Mainstream Pen-Computing

Over the last 20 years, the industry expectations of mainstream pen-computing have risen and fallen like a scary roller coaster at Six Flags Texas. Don’t confuse this with successful vertical pen-computing in medical, transportation, construction, military, and retail industries.

The mainstream pen cycle has historically gone like this:

  1. Pen-computing is knighted the “next big thing”
  2. The entire high-tech value chain including semi’s, ISVs, ODM, OEM, and distribution invests heavily
  3. Products get shown at CES, PC Expo, and Comdex
  4. Products emerge with very few pen-centric applications
  5. Product sales-in to channels meet minimum expectations
  6. Product sales-out of channels fail to meet expectations and get blown-out at rock bottom prices
  7. The industry retreats, folds its tents, and chases another shiny new thing
  8. In five years, go to step 1 and repeat.

This cycle has repeated itself many times, over and over again.

HTC Flyer Overview

The HTC Flyer, even without its pen capability, is the best 7” tablet I have used and that says a lot, given my affection for the Samsung Galaxy Tab 7.

It’s very peppy and I attribute a lot to HTC’s decision to go with a single core 1.5 GHz CPU versus a lower frequency dual core CPU. That makes sense now because of the infancy of the OS and its application multithreading. Android 2.3.3 (Gingerbread) is VERY stable, light-years more stable than Android 3.X (Honeycomb). The 5MP camera is the best I have used with the exception of the iPhone 4.


HTC Flyer Pen Features

The HTC Flyer is impressive even without pen input, but what about the specific pen features? Essentially, if you see anything on the screen, you can annotate on it. Also, HTC pre-installs a multimedia notes program as well.

· Annotations: If you are viewing anything on the HTC Flyer, click the pen to the screen and it takes a screen shot. This included web sites, applications, and even photos.

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· Notes Program: HTC preinstalls the “Notes” app, a program that can take notes with the pen, text, voice, videos, and even attach files. I believe this is a re-skinned Evernote app with the added pen-inputs as it syncs with Evernote. As you can see on the far-right, it doesn’t improve my handwriting at all.

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· Multiple Pen Types: I could choose from multiple pen types, colors, and sizes, all by tapping the pen to an icon in the lower right hand corner of the Flyer. As you can see on the far-right, it doesn’t improve my handwriting either.

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User Interface Modality

With pen-computing, the user has three modes: pen, touch, and virtual keyboard to do most of their input. I found it difficult to go back and forth between pen and finger, but found a way to do both without having to place the pen down.

Future of Mainstream Pen Input

The pen capabilities of the HTC Flyer are the best I have ever experienced on any mainstream computing device BUT I do not see pen input using a specific pen getting popular outside specific vertical industries. Why? The modality between switching between finger and pen will be an issue for many people. There are solutions, though.

The Problem

If a pen is an impediment to pen computing, what would allow for precise input without the pen? The iPhone only partially solved it with the “finger”. Finger input has two major problems:

· The palm: No other body parts can touch the display, like a palm. Try drawing on any iOS device with your palm resting on the display. Come on… try it.

· Fat finger: On a 7” display, unless you have fingers as skinny as a pencil, they are too imprecise.

Technologies That Can Solve This

· Object recognition: If the tablet can recognize that an object that it “sees” as a pointing device is getting closer and touches the tablet, any object, finger, feather, or ball point pen cap could be the “pen.” Object recognition combines an input sensor and software that identifies what the object is. PixelSenseTM from Microsoft is just one example. Objects could also theoretically be captured and recognized accurately with stereoscopic cameras. Below is a picture I took at CES 2011 of PixelSense object capture in action. This is an image of what the pixels in Microsoft Surface® 2 are seeing.


· Improved touch algorithms: Object recognition is a difficult task but doesn’t solve everything. You identify what something is, but you then need a decision engine that triggers a response. Improved touch algorithms can determine what to do with the finger and ignore the palm of your hand. Or, if it’s a larger display and a painting program, it knows what to do with the palm and the finger simultaneously.


Pen-computing has undergone a roller coaster of ups and downs and has only been successful in vertical industries and specific usage models. Could the HTC Flyer usher in a new revolution of mainstream, pen-based computing devices and consumer usage models? Well, I don’t believe so, and not because the HTC Flyer isn’t an awesome tablet, as it’s the best 7” tablet available right now. The biggest impediment to pen computing is the pen itself, and until the right technologies enable any finger or object to “be the pen”, the usage models won’t take off. The good news is that technologies like object recognition, improved flat panel sensors and algorithms are on their way.

Microsoft’s “Can’t Lose” Mobile Strategy


Microsoft has been trying to recapture momentum in mobile after ceding the early market leadership it had 5-6 years ago due to its lack of adequate investment and resultant inability to stay competitive. And its renewed focus and execution over the past 1-2 years is indeed enabling it to make progress. But behind the scenes Microsoft has a strategy to become a driving force in the market and will likely produce more profits than many of the handset manufactures. And this is regardless of whether Windows Phone is successful.

Microsoft makes no mobile hardware, and licenses its OS software to several handset manufacturers (e.g., HTC, HP, Samsung). Its latest version of Windows Phone 7 (Mango) is refreshingly competitive and shows a lot of promise. And its distribution partnership with Nokia could propel it into a leadership position (although we remain skeptical that it will happen as quickly as some predict). Many observers focus on Microsoft’s attempt to gain ground on the competition by increasing its anemic smartphone OS market share. But the number of smartphones now being sold with windows mobile or the newer Windows Phone 7 is pretty small (various estimates are less than 5% of the market). Even at an estimated $10-$15 license fee per phone, the stakes are pretty small for a company the size of Microsoft.

But licensing the OS should actually be Microsoft’s back-up position. Frankly, there is far more money to be made other places. First, Microsoft is now putting a squeeze on all of the Android handset makers by enforcing its patent portfolio and claiming all such manufactures must license Microsoft IP to prevent infringement. And the handset makers are coming on board. Deals have been struck with HTC to start, and negotiations continue with others (e.g., Samsung). It is quite likely that Microsoft will be able to extract licensing fees (eventually) from all the manufacturers. And at $5 per handset produced, that is a staggering sum.

Adding to this revenue stream is yet another lucrative deal for Microsoft. Virtually every smartphone made (including Apple and Google Android, but with the exception of BlackBerry) licenses ActiveSync as the way to both connect to email (via Exchange) and to control the device (e.g., kill, provision). Microsoft controls 80%-85% of the enterprise email market. Without ActiveSync capability, the devices are unable to work in the business world, and what high end smartphone maker wants to be excluded from the corporate world? So licensing fees of $3-$5 per smartphone device for ActiveSync licenses has huge potential.

So what does this mean for Microsoft’s revenue streams?
Currently, all versions of Microsoft powered phones sell about 12M units per year (based on smartphone sales of approximately 400M worldwide estimated in 2011*, and 3% market share for Microsoft). That amounts to $180M best case (at $15 per device). There will be an estimated 140M Android phones (based on 35% market share) and 80M iPhones (based on 20% market share) sold this year worldwide. That amounts to $660M – $1.1B for ActiveSync licensing. And it’s likely that Microsoft will get many (if not all) of the Android vendors to pay royalties, so that’s another potential $700M (at $5 per device). This is not guaranteed, given it has not yet signed licenses with many of the vendors and some vendors in emerging markets may not care if they are infringing. But even if Microsoft only generates half of this amount, it’s a substantial sum. The OS revenues look paltry by comparison to potential IP revenues. And IP doesn’t require the substantial investment in updates and improvements that the OS does, making it even more lucrative.

Further, the smartphone market is likely to at least double over the next 3 years when we expect Microsoft to capture 15% of the smartphone market (primarily with Nokia). So 15% of an 800M device smartphone market = 120M devices and at $15 per device for licensing the OS = $1.8B in revenue. But the number of devices to be sold on Android = 45% of the total or 360M and on Apple = 15% or 120M. And at $8-$10 license fee per Android device and $3-$5 per Apple device, that’s $3.2B – $4.2B in revenue.

And moreover, even though Bing is currently way behind Google search in market share, it is now the favored platform for phone manufacturers distancing themselves from Google’s dominance. We expect Bing to capture 25% of mobile search in 3 years. This represents a huge revenue opportunity for Microsoft, although it’s hard to quantify at this point.

Bottom Line:
Microsoft can generate a lot of revenue from its deal with Nokia. But even if it doesn’t, the number of licensees of its IP will guarantee Microsoft a sizeable chunk of the mobile revenue stream. And that doesn’t even include the potential for revenues generated by cloud-based and Bing centered services. So Microsoft stands to gain handsomely from mobile, whether it succeeds with its own OS or not. It really can’t lose.

*Market Statistics and Projections (compiled and adapted from various estimates):

  • Current Smartphones shipped worldwide 1Q 11 = 100M units. Estimated 400M total units in 2011.
    Approx Shares: Android = 35%, Apple = 20%, RIM = 15%, Symbian (Primarily Nokia) = 25%, Windows Mobile = 3%, Other = 2%
  • Future Smartphone estimates for 2014 = 800M units
    Shares: Android = 45%, Apple = 15%, RIM = 15%, Windows Phone (Primarily Nokia) = 15%, Other = 10%