Definition of SmartphonesSmartphones usually have extra features such as GPS, Wifi, touch screens compared to general mobile phone, but what really make smartphone different from the others is the Operating Systems:“A smartphone is a phone that runs complete operating system software providing a standardized interface and platform for application developers “so that hundreds of thousands of applications can be developed on the smartphones. (Wikipedia)
http://www.gpsbusinessnews.com/IMS-Smartphone-Shipment-Grew-15-in-2009_a1997.html CAGR: 24.5%(global)Smartphone shipment growth is expected to accelerate in the future, with IMS Research projecting a CAGR of 24.5% between 2010 and 2015. Much of this growth is forecast to come at the expense of the feature phone segment, as the average selling price for entry level smartphones approaches the same levels as high end feature phones.
The economic and industry boost is 17.9%. Companies competing solely in the smartphone space, like RIM, Apple and HTC, achieved higher ROA than companies that also sold dumb phones. And then there is Palm…
This graph show the smartphone stack from suppliers to the carriers.We will talk all around this chart through out the analysis,Currently, the suppliers of the smartphone are IC chips manufacturers who produce standardized CPU, GPS chips, or communication modules. The standard components make the smartphone manufacturers easier to switch from suppliers to suppliers, and therefore the power of suppliers is low.
The OS play a crucial part in the smartphone industry. So we have to look at the market share of both smartphone sales and OS installation base.Rim and Apple dominate both the hardware and software sides of the market. This has allowed them to gain influence in the market and reap higher profit margins due to synergies between business divisions. The development of the OS would affect the sales of smartphone, the new entrant – Google Andriod started to gain market share aggressively in the last half year of 2009.
The strategy of the manufacturers are very different.RIM: Business focus with Apple: Focusing more on service integrations that including all their product portfolios (iMac, iPod, iPad…) and services (iTunes, & App store) by leveraging the Network effect.HTC: employs an attack or penetration strategy with a complete portfolio of smartphones from high end to low end.Palm: is struggling with cash flow and the carrier relationship, so there is no specific strategy here.
HTC is more close to cost leadership http://www.cio.com/article/557863/They_re_Here_Cheap_Android_Smartphones“Taiwan has traditionally led the way with cost cutting in everything from PCs to game consoles and mobile phones, through low cost manufacturing on the island and in China. The prices of the two new smartphones are around half that of comparable models from major handset vendors. Taiwan Mobile next week will start selling the TWM T1 smartphone for NT$8,990 (US$280) with no service contract.”Yet except for apple and RIM, mostsmartphones are less differentiated to the customers. Then thus every player is stuck in the middle.
Since the competition is less differentiated, the rivalry is high.
Direct Sale: How this helps Google is that it gets to market and sell phones to you in a marketplace without competitors -- no iPhones, BlackBerries, or Palm Pres here -- and gives carriers and incentive to compete over you, the customerIt's much easier for Google to seal the deal this way. (Bonus: It probably gets a few hundred bucks for helping sign up mobile subscribers, the way any third-party retailer -- Amazon, RadioShack, Best Buy, etc. -- does.)Google is not the first to try selling phones direct to consumers. Apple, of course, sells many of the iPhones in the U.S. via its retail stores. Palm has sold unlocked phones direct to consumers for years (at steep, unsubsidized pricing) with limited success. Nokia does this with some phones that don't make it to the U.S. at major carriersRead more: http://www.businessinsider.com/googles-biggest-mobile-move-disrupting-carriers-by-selling-direct-2010-1#ixzz0lGnV4WYwOther carriers have done this: Nokia (not in U.S.), Palm w/ limited success, iphones via Apple Store
Verizon is #2 & AT&T is #4 advertiser in 2009, sprint is #8 and yet increased their ad spend by 30% in 2009Manufacturers spend 18% of what the carriers spend on advertising, making the carrier/manufacturer partnership even more important.Source: http://www.marketingcharts.com/television/annual-us-ad-spending-falls-123-12327/http://www.textmessageblog.mobi/2008/06/26/market-share-by-cellular-carrier/http://www.tomsguide.com/us/verizon-at-t-cellphone,news-1419.html
Predominant “locked” phone model, locking in a consumer to a contract with a carrier. Smartphone sales depend heavily on carrier to subsidize the phone price & network externalities. Carriers also need innovative product as a market “hit” to win competition. (such as Droid & iPhone)
Overall the buyer power is moderate as they both need and help each other.Thing would get different when different manufacturers partnering with different carriers.For example, minor manufacturers (such as HTC & Palm) may face strong buyer power when partnering with leading carriers such as AT&T or Verizon.
More and more companies are interested in the smartphone industry. OS developers are entering the market by having their own brand (OEM) phones. And companies in related industry like Cell phones, PC, network equipment industry are all trying to get into the market.
Overall, Threat of Entry is moderate since only companies in relevant industries have the competency to enter
Convergence in action. Smartphones have a low threat of substitutes, rather smartphones are substitutes for mobile phones, MP3 players, GPS, cameras, and netbooks.Smartphones are convergence in action.Smartphones have redefined the mobile lifestyle.Threat of substitutes is low.
most of the threats are moderate also while rivalry is high... the profit potential is very high because of the app stores and stuffbecause of lock-in with the apps eco systemOverall the industry in attractive for incumbents.
OS competition becomes more fierceWindows Phone 7, iPhone OS 4.0, Android 2.1, WebOSHardware/Software integrationDevices become more commoditize, making money on software.Web2.0, Service Integration/ Convergence of Technology (Zune, Xbox), Consolidation, Manufacturers provide customization on OS to differentiateHTC Sense, Moto BlurExponentially Increasing mobile data usage, applications, (Network effects)Emphasis and Integration of social media applications on smartphone. (Kin One, Two)
Within the highly competitive hardware market the competition imitates any new feature launched by a rival company. For example, after Nokia added GPS and 3.2 megapixel cameras to their phones’ design, competitors quickly followed. Recently, HTC announced that they were planning to embed a 1 ghz. processor in their phones, only to have Apple make a similar claim a few months later. Hand = Multi-touchCamera= 3.2 Megapixel CameraGPS=GPSCPU= 1 ghz processor
As development cycles become shorter, it becomes more and more difficult for rivals to innovate and differentiates there OS from the competitions. It is often easier and cheaper to imitate than to innovate!
The # of blackberry apps may be less, but it quality or usefulness of them are far more valuable for business users.Those Apps in Apps stores or Blackberry are the true differentiators for smartphones. This is also a difference between users of BlackBerry users and Apple Users. On average BlackBerry Users only use 5 applications on their phone and those applications are mostly business related. http://en.wikipedia.org/wiki/List_of_digital_distribution_platforms_for_mobile_devicesHardware and even OS are becoming commoditized. Every company is developing or acquiring OS. Apps are a point of differentiation. Source: http://www.roughlydrafted.com/2008/03/07/apples-iphone-vs-smartphone-software-makers/iPhone, Apple is embracing both open source and freeware as well as commercial application development. Apple is creating a market for even the smallest of developers that is patterned directly upon its support for indie labels in iTunes.Apple will promote their software in iTunes and the iPhone App Store for a 30% commission. If that sounds like a lot, consider that the retail markup on most software is 50%, and developers typically pay to market, package, and distribute their work from their half.Open source works well at offering alternatives to proprietary, commercial products and technologies, but as yet there are few examples of hardware makers using Linux to take over new markets, particularly where tight hardware and software integration is important. In embedded applications, the use of Linux is often wrapped in so many layers of proprietary hardware that it begins to offer no real advantage over a custom designed system like the iPhone.
Break-through technologies and devices Inconsistent Corporate strategy Inconsistent Business strategy
Wrong time because, the internet penetration into mobiles was not sufficient while Palm has leading edge in the market and when the 2.5G high speed internet became available, the iPhone stole the market and Palm had to follow “I believe the best strategy is to be the first person to be second” – Henry Ford‧Engineering driven product development with little marketing strategy.
Apple’s Big Picture Strategy: Apple takes advantage of the Entertainment and Utility Apps, anything that exploits the touchscreen. Palm did not release WebOS SDK to developers on time which led to reduced enthusiasm Palm’s Market Research has shown that Women are a great target market which turned out to be a disaster for Palm at the end The exclusive partnership with Sprint has caused “Hold-up” and virtually killed Palm’s hope of successIf Palm's WebOS products had gone on sale at Verizon before Motorola's Droid, Palm's fortunes today would be very different - Jon Rubinstein, CEO Palm Inc.
WebOS is well positioned for future applicationsApplications for WebOS are easier to develop since it is based on established web standards and programing languagesProgramers who can write programs for the web can write programs for PalmSell the hardware development since it is not a core competency any moreCommoditized hardware squeezes profit marginFocus on OS development by leveraging two-sided network Strategic partnership to create more service convergenceThe key lies in encouraging network effects
Leverage two-sided markets Developer Side:Applications are low compared with competitors and palm needs to catch up. Subsidize developers and developer workshops by increasing royalties as well as allowing developers to embed ads into their applications. Continue to provide incentives like the $1 million contest for best application. Encourage developers to have versions of apps, allowing both Lite and Paid versions of their apps to be made available (Freemium). Experiment with other revenue models: trialware and adware. Increasing applications will help Palm leverage online application store platform further (discuss network effects) and capture long tail with introduction of more social media applications and user-created content (videos and photos) Consumer Side:Focus on promoting entertainment services along with social networking, such as games and tv, in turn optimizing service integration playing to Palm’s social media strength (versus business).Position Palm as broad and differentiated while shifting target audience to young professionals Market through social media by reaching out to people such as YouTubers who review apps Partner with complementors including Nintendo for Wii, application review sites, music distribution sites, etc.
Palm is very difficult to value: Given Palm’s rate at which Palm is burning through their cash reserves, the decision needs to be made fast
HP and Dell have already taken a pass. LG has not interest. Nintendo’s and Sony’s core competencies are not alignedAlready Committed: Google (Android), Microsoft (Windows 7), Rim (RIM OS), Apple (OS X), Samsung (Bada), Nokia (Symbian / Maego) and Intel Moblin. Last two creating MeeGo.Sony Ericson, Motorola and ZTE No fire and bad timing
Lenovo used to be just another laptop OEM. However, purchasing IBM’s personal computing division, gave them the creditability they need to shrug off preconceived notions about manufactures from China and become a dominant brand selling high quality, business notebooks for a good value. Recently they launched LePhone. Which runs Andriod and has yet to differentiate itself. Given their past, it would make sense that they would want to try something similar and possibly buy Palm. They also could use the acquisition to marry the Thinkpad technology with the Web OS to create new products like the LePad…similar to what Apple did. Unfortunately, Lenovo has been negatively impacted by the economic slowdown. Although they have the cash to purchase Palm, Lenovo posted negative cash flows in 2009 and breached certain terms with lenders that makes an acquisition unlikely.
Award Winning Service Delivery Platform (SDP)100 OperatorsReduce TTM < 12 weeksIncrease ARPU 5-8%Subject to holdup
Both HTC and Palm focused on smartphones. With only 6% of smartphone handset market the lesser know HTC is dwarfed by its larger competitors, Apple and RIM. Purchasing Palm will allow HTC to gain brand awareness and market share. In addition, currently the is a misconception in the market that devices from Taiwan and China are of lesser quality. A purchase of Palm will allow HTC to differentiate it self as a high quality product while maintaining a low manufacturing cost. As the hardware of phone become less differentiated HTC will be looking for ways to protect their 22% profit margin. Like its bigger rivals HTC could purchase Palm and develop a double sided market around Web OS. This has the potential to become a major player in both the NA and Asian markets. HTC has both the cash and incentive to do this. HTC has 58 Patents in the space. Google has 316, Apple has 3000 and Palm has 1650. In March, Apple filed suit against HTC for infringement on 20-30 of its patents. Many analysts believe this is because HTC doesn’t have the patent protection or deep pockets to fight back. This lawsuit has the potential to stop HTC sale in the US. In 2009, US sales totaled $2.2 billion. Therefore HTC may be willing to buy Palm for the patent shield it represents and the equity is just icing on the cake. Sources: Edible Apple, Palm 2009 10K, and HTC 2009 Q4 Financial Statement
30,000,000 Elvis fans can’t be wrong!Source: http://www.engadget.com/2010/04/12/who-should-buy-palm/
- Great Product, Bad Strategy Team B6 Sudhi Chada, Matt Ho, Malini Mansukhani, Alicia May, Kevin Schlabach, Betsy Stiles
Outline Industry Analysis Industry Trends Palm Company Recommendations Conclusion Industry Analysis Palm Company Industry Trends Recommendations 2
What is a Smartphone Touch Screen Operation System Software Productivity Apps Web Access E-mail, Games, PDA… QWERTY Keyboard GPS,WiFi Industry Analysis Palm Company Industry Trends Recommendations 3
SmartPhone Industry 2009 US Market Revenue: ~$7 billion Unit Sold: 47.2 million 09’ Growth: 27% Major Players: RIM, Apple, HTC, Nokia, Motorola (Droid) Millions Source: Mintel, Frost & Sullivan, Canalys. Accelerating growth at the expense of the feature phone segment. Worldwide smartphone growth : CAGR 24.5% (2010-2015) Within five years, all phones in US will be smartphones. Source: Frost & Sullivan, Industry Analysis Palm Company Industry Trends Recommendations 4
Industry Profitability +9% +12% -0% -4% -16% -13% -39% 5.9% Source: Yahoo Finance, Company Websites Highly profitable industry with high margin Concentrated company enjoys higher returns Industry Analysis Palm Company Industry Trends Recommendations 5
Smartphone Stack Hundreds of thousands of individual developers Power of Suppliers LOW 6
SmartPhone Industry - market share Source: comScore Source: Canalys Proprietary OS dominates 75% of the market Fierce battles in both phone manufacturers and OS developers Google Android is the fastest growing OS in the past 6 months Industry Analysis Palm Company Industry Trends Recommendations 7
Competitive Landscape OS # of Models 2 11 2 23 Service Integration Attack Strategy Penetration Survival Business Focus Strategy Carriers Industry Analysis Palm Company Industry Trends Recommendations 8
Smartphone Competitor Position Cost Leadership Differentiation Broad Narrow Industry Analysis Palm Company Industry Trends Recommendations 9
Smartphone Stack Hundreds of thousands of individual developers Rivalry HIGH Power of Suppliers LOW 10
Distribution Structures Distribution Channels Smartphone Manufacturers Carriers Retailers Consumers Industry Analysis Palm Company Industry Trends Recommendations 11
Carrier Details Source: Best of media group Source: Kantar Media
Partnership determines the potential customer base
Ad spend is an incentive for manufacturers to partner with carriers
Industry Analysis Palm Company Industry Trends Recommendations 12
Carrier Partnership subsidize smartphone prices SP Manufacturers Carriers “Hit” product Industry Analysis Palm Company Industry Trends Recommendations 13
Smartphone Stack Buyer Power MODERATE Hundreds of thousands of individual developers Rivalry HIGH Power of Suppliers LOW 14
Threat of Entry Huge market potential draws great interests Carrier partnership, HW/SW integration cost and heavy AD budgets prevent other new entry Industry Analysis Palm Company Industry Trends Recommendations 15
Smartphone Stack Buyer Power MODERATE Threat of Entry MODERATE Rivalry HIGH Power of Suppliers LOW 16
Threat of Substitutes Unique Features of Smartphone Portability Integrated functionality PC-like jobs Netbooks Smart Phones Mobile Phones MP3 Players GPS Industry Analysis Palm Company Industry Trends Recommendations 17
5 Force Analysis Buyer Power MODERATE Attractive Industry Rivalry HIGH Threat of Substitute LOW Threat of Entry MODERATE Power of Suppliers LOW Industry Analysis Palm Company Industry Trends Recommendations 18
Industry Trends Devices are getting commoditized Network effects driving differentiation in OS Smartphone as a central part of service convergence. Industry Analysis Palm Company Industry Trends Recommendations 19
Hardware: Commoditized Smartphones similar features look the same in consumers minds 1 GHz 3.2MP 2006 07’ 2010 09’ 08’ Source: Company websites and press releases. Industry Analysis Palm Company Industry Trends Recommendations 20
OS: Less Differentiated Smartphone OS Evolution Source: Wikipedia, Lexis Nexis New OS entrants forced incumbents to reduce product development cycle Imitations between OS make them less and less differentiated Industry Analysis Palm Company Industry Trends Recommendations 21
Apps: Point of Differentiation Market Place OS 42,000 1,561 Apps Available 4,071 140,000 376 $25 Free Developer Fee $200 $99 $99/app 70% 70% 80% 70% 70% Royalty Easy Easy Hard Hard Moderate Ease of development Differentiation is driven by Applications & Network Effects Source: Wikipeida Industry Analysis Palm Company Industry Trends Recommendations 22
Palm Company Palm-istry – Glory and Fade WebOS – Superior but Unpopular Great Product, Bad Strategy Industry Analysis Palm Company Industry Trends Recommendations 23
Palm-istry 1992 1993 1999-2000 2000-2005 2005-2008 Palm.net service PalmConnect Palm Vll Palm Tungsten Palm Treo Palm Treo Palm Centro Palm Pilot Stock Price Source: Wikipedia.org , Finance.yahoo.com Industry Analysis Palm Company Industry Trends Recommendations 24
The Fall of Palm Great Ideas Bad Timing The use of productivity applications is limited PalmConnect software, to sync PDA (smartphones) with PC Mobile Network Infrastructure not ready by then Palm.net, an always-on internet service Great Product, Bad Strategy PDA prices too high, limited customer base. 275,000 developers and 50,000 apps for PalmOS Source: Wikipedia.org Industry Analysis Palm Company Industry Trends Recommendations 25
Palm Strikes back Palm Pre is the most legitimate rival to the iPhone - CNet Intuitively designed around web 2.0 Advanced Features:
Target Market Industry Analysis Palm Company Industry Trends Recommendations 27
Current situation Competitor Imitation Carriers Palm Pixi Plus - $29.99 Prices Palm Pre Plus - $49.99 OS Features Sales 408k devices sold (57.5% devices on shelf) Until 2007 2008 2009-10 Palm is losing competitive advantage Michael Abbott, software chief and key contributor to WebOS, quit Palm Dumped the ad agency, Modernista Stock Price Plummeting Rumors of sale Industry Analysis Palm Company Industry Trends Recommendations 28
Recommendations Palm Turnaround Turnaround strategy Leverage two-sided OS Market Palm for Sale Palm for Sale Potential Buyers Industry Analysis Palm Company Industry Trends Recommendations 29
Palm Turnaround Hardware: Software: ‧Commoditized hardware squeezes profit margin ‧Not core competency any more ‧Financial Hardship impede hardware R&D ‧WebOS is well positioned for future applications ‧Open Platform encourages application developers
Sell hardware department
More resource on OS dev
Focus on OS & Platform development
Industry Analysis Palm Company Industry Trends Recommendations 30
Leverage two-sided OS Market App Catalog Developers Consumers Subsidize and educate developers:
Increase Royalties to 80%
Educate about new revenue models: versioning, adware and trialware
Industry Analysis Palm Company Industry Trends Recommendations 31
Palm for Sale Crazy Financials: Artificially elevated cash flows Recent Accounting Adjustments Recent Equity Sale Vague IP Portfolio Value ($1.5b?) Burn Rate: 12 Months to live Industry Analysis Palm Company Industry Trends Recommendations 32
Potential Suitors Industry Analysis Palm Company Industry Trends Recommendations 33
Past Now Future Full Product Portfolio: PC, Laptop and Smartphones Breached terms of credit in 2009 Industry Analysis Palm Company Industry Trends Recommendations 34
Hongwei Don’t print Hongwei Industry Analysis Palm Company Industry Trends Recommendations 35
Large telecom & handset manufacturer in China Heavy investment in 4G 68% US Growth / 9 offices Weak brand recognition in U.S. ‧Foothold in the U.S. Market ‧Fill out product portfolio ‧Rumored to have been in talks since February Industry Analysis Palm Company Industry Trends Recommendations 36
Small player big competition Pure hardware manufacturer Commoditized hardware New revenue from software side Current Patent Lawsuit ‧Hardware & OS marriage ‧Gain market presence ‧Patent Shield Industry Analysis Palm Company Industry Trends Recommendations 37
Crowdsource What’s your vote? Source: engadget Industry Analysis Palm Company Industry Trends Recommendations 38