Competitive strategy and recommendations for Android dominance, analysis as of May 2010

1. Competitive Strategy Group, May 2010
Rajeev Kalavar
Adam Rahman
Diana Tsao
Srujana Vallabhaneni
Slide 1
Mobile OS Strategy

2. Primary Sources / Interviewees
• Subir Jhanb Google, Android Engineer
• Herman Ng Google, M&A Finance Manager
• Jerry Denton* Google, Marketing Director
• Jahanzeb Malik Qualcomm, M&A Sr Manager
• Bradley Layous AT&T, Chief-of-Staff
• Gregory Hoffman T-Mobile, Finance Sr Director
• Hitesh Anand Nokia, Head of Strategy
*Name altered at request of interviewee for confidentiality
Slide 2

3. SmartPhone OS: Porter’s Five Forces
Competitive Rivalry (HIGH)
iPhone (Apple), Symbian (Nokia), Windows
Mobile (Microsoft), Research In Motion
(Blackberry OS)
Slide 3
Complements (MED)
SmartPhone apps/handset, carrier plan, m-phone accessories, flash memory
Threat of Substitutes (LOW)
Need an OS to run Smartphone, especially
with “open” handsets
Bargaining Power of Buyers (MED)
Consumers select from the many existing SmartPhone OS offerings.
Bargaining Power of Suppliers (LOW)
Mobile OS designed and made in-house; minimal suppliers.
Threat of New Entrants (HIGH)
Most telecom / software companies have ability to enter. Many firms in
emerging countries launching new SmartPhones with simple, reverse-
engineered OS.

4. Google Mobile OS: Android
• Android central to strategy
• Tightly integrated with Google’s web product offerings
Slide 4
• Open Handset Alliance that sets standards for mobile devices;
Initially 65 companies from across value chain
• It is Open Source and free to handset manufacturers

5. • Symbian (Nokia’s OS) has leading global market share (small in US)
• Android small, but has highest growth rate of all
Slide 5
• Apple has had high growth and closing in on RIM. Extracts a significant
portion of industry rents
• Mix of vertical and horizontal models within SmartPhone business

6. Nexus One Launch
• Advanced features with 5 Megapixel Camera, 1 GHz
Processor, Google Android OS, GPS, etc.
Slide 6
• Low-key launch: little marketing, one carrier, unsubsidized
$529.00 / unit direct-to-consumer model
• 74 days following launch, unit sales:
• iPhone 2G: 1.0M
• Motorola Droid: 1.0M
• Nexus One: 0.1M
• Nexus One Purpose:
• Example of Android fully leveraging Google product offerings
• Lift the innovation bar for handset manufacturers on Android
• Google is signaling to Android ODM’s and Apple

7. Android Consortium vs Apple iPhone
Apple / iPhone
[Closed Platform]
Andoid-Based
Manufacturers
History repeating itself like Windows / PC’s vs Apple Mac?
Slide 7

8. Power of Brand
•Google's brand valued at $100 Billion,* greater than
brands like Coca-Cola and Microsoft!
Slide 8
•Lends credibility to Android
•Handset manufacturers can leverage strong Google
brand to market Android-based handsets
* 2009 Datamonitor report

9. Google’s End Game in Mobile
•Is it the Nexus One?
Slide 9
•Is it Android?
•It is about controlling the Mobile Ecosystem
and eventually extracting majority of its rents
through mobile search advertisements with its
portfolio of Google products as search
transitions more from desktop to mobile
computing.
…No
. . .No

10. Recommendations
• Attract more handset manufacturers to Android
Slide 10
• Increase mobile application offerings
– Make Android Market easier for developers to use & quicker app
approval process versus iTunes
– Offer higher app sales cut to developers versus iTunes
Product Integration
• Match or beat tight integration offered by iPhone/ OS X/ iTunes within
Handset/ Android OS/ Android Market combinations
Market Penetration
• In addition to mainstream users, target the enterprise / business
segment

11. Recommendations continued
Slide 11
• Ingredient marketing: Cover portion of handset manufacturers’ costs
(Intel Inside case)
• More integration in Google product offerings
• Continue building VoIP capability through Google Voice
Marketing
• Protect brand image in mobile
Leverage existing offerings

12. Questions?
Slide 12

13. Google vs Apple:
Collaborators turn Rivals
1. Enter SmartPhone
market
2. Acquire Mobile
Ad company
3. Block Mobile
Ad firm acquisition
5. Reject Google Voice
App from iTunes
• Parallel between Google / Apple and Gillette /Bic case
• Google does not have competitive advantage in hardware
Slide 13
4. Antitrust Allegations

14. Collaborators or Competitors?
06.07
Apple releases
iPhone
11.07
Google unveils
Android
10.08
Google launches
Android Market
07.09
Apple rejects
Google Voice
09.09
Google CEO steps down from
Apples board of directors
11.09
Google acquires
AdMob

15. Collaborators or Competitors?
01.05.10
Google
releases
Nexus One
01.05.10
Apple acquires
Quattro wireless
01.22.10
YouTube starts to
rent movies.
01.26.10
Google Voice in
browser released
04.08.10
iAd announced
01.10
FTC investigating
Google/AdMob deal
03.10.10
Ads served on
YouTube mobile
02.05.10
Apple bans word “Android”
from App store
05.10
Apple to replace
default search engine
with Bing?

16. Google vs Apple:
Mobile Strategy
Slide 16
Apple Google
Mobile OS Closed [OS X] Open [Android]
Primary Mobile Rents Hardware Mobile Ads
Partnership Limited [Primarily
AT&T]
Numerous [Open Handset
Alliance]
Customer Value End-to-End User
Experience
Integration: Mobile OS with
Google web product offerings
Online Store iTunes Android Market
Apps Offered 190,000 50,000

17. Smartphone / Mobile Trends
• Mobile phones have become like small computers
• Features on Smartphones becoming “an extension
of your senses” with vision (camera), touch
(screen), voice (speech recognition), awareness
(GPS), etc.
• Consumers personalize their phones with
applications
• Growth in mobile search outpacing traditional
desktop search. Substantial shift in revenue source
for Google: from desktop to mobile ads.
Slide 17

18. Component
Suppliers
Wireless
Carriers
Mobile
Consumers
Mobile
OS
Mobile Value Chain in US
Mobile Retail
Outfits
Handset
Manufacturers
Mobile Handsets (in general):
Wireless Carrier
of Choice!
Nexus One
Consumers
Android
OS (Google)
Google
(online store)
Nexus One
Manufacturer:
HTC
Google’s Model (D2C):
Semiconductor
Chips
Branded
Companies
Component
Suppliers
Semiconductor
Chips
Slide 18

19. SmartPhone Hardware:
Porter’s Five Forces
Competitive Rivalry (HIGH)
Apple (iPhone), Motorola, Nokia, Samsung, Research In Motion, LG Electronics
Threat of Substitutes (MED)
Landline telephones, VoIP, PC, laptop
Compliments (MED)
Applications, carrier service plan, mobile phone accessories, flash memory, Personal
Computer
Bargaining Power of Buyers (MED)
Consumers select from existing SmartPhone offerings. However, many options.
Bargaining Power of Suppliers (LOW)
Mobile semiconductors and phone hardware becoming commoditized.
Threat of New Entrants (HIGH)
Most telecom companies have ability to enter. Many firms in emerging countries
launching new SmartPhones.
Slide 19