Thursday, May 3, 2012

Apple, Google, Amazon Microsoft: Who Wins the Ecosystem War?

Microsoft's recent investment in the new company that will own the Nook tablet and content business illustrates a couple of important strategic shifts now happening in the mobile device and application markets. The biggest shift is the growing importance content, advertising and commerce operations are assuming for device and application suppliers. 

Among the secondary issues is a new take on "open" versus "closed" approaches to software development have been a live issue for decades. These days, with the emergence of content and commerce as key elements of device and application strategy, the questions are taking new shape. 

Some believe the "Four Horsemen" of the Internet include Facebook, Apple, Google and Amazon. Others might say the list actually is "Five Horsemen" and include Microsoft. Either way, the notion is that  handful of firms have the ability, at least in principle, to create and own a complete and walled-off ecosystem in which consumers use a single company’s hardware, operating system and storefront to search online, buy apps and purchase digital media and  physical products. 

If that proves to be true then a couple of predictions are easy to make. Facebook and Amazon will produce their own smart phones. Facebook might also have to produce a tablet. Apple will have to create a mobile payment service, as will Microsoft. 

Google and Facebook will have to get more share of the e-commerce and mobile commerce transactions, and all will deepen the activities they now already support around mobile advertising, promotion and loyalty. 

Last week, yet another rumor surfaced that Facebook is getting closer to releasing its own branded smartphone, an obvious attempt at owning a stack component (hardware) that’s currently missing from its line-up, Wired reports. Rumors about an Amazon smart phone have circulated for a couple of years, on and off, as well. 

“A smartphone would be a logical next step for Amazon,” ABI Research Analyst Aapo Markkanen says. 

Either of those moves, plus an eventual move to create a Facebook tablet, illustrate the changing role of devices and connectivity in the mobile space. Traditionally, mobile phones simply were devices carriers had to provide to sell voice and messaging services. 

These days, matters are more complex. In addition to communications, hot consumer devices frequently are used for content consumption. That means smart phones are more important to application providers as platforms for selling content and advertising. 

Everyone expects a mobile device to handle voice and texting. Beyond that, more users expect the ability to consume content and conduct transactions. That changes the strategic importance of being a device manufacturer. 

For mobile service providers, phones have been a sort of prop to produce revenue indirectly, in the form of service subscriptions. But that also now is increasingly true for application providers. 

For Apple, which merchandises all sorts of content to sell devices, the tight bundling of content and commerce is a major reason it can sell so many devices. That also is true for some other mobile device manufacturers. But not for all. 

For Google and Amazon, devices are a way to sell more advertising, content and merchandise. Microsoft has a slightly different take, as it always has preferred to sell operating systems to partners who make phones. But Microsoft has to succeed in mobile operating systems to profit from the device ecosystem that supports the advertising, commerce and content businesses. 

Such thinking is not terribly new. Consumer electronics manufacturers have for decades understood that content was important for the devices business. Sony is probably the best example of that. Apple arguably was the first consumer devices firm to really achieve that integration, with its iPod and iTunes. 

These days, gaining the ability to lock consumer into a particular content ecosystem is the reason producing devices matters. 

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