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Turbulent Times in the Mobile Industry

23rd August 2011

Most of the time, technology is the driving force in the mobile phone industry. But at the moment, what seems to be driving the market is upheavals in the industry itself, resulting in what is a very turbulent time for businesses and customers alike.

Google to buy Motorola

Google's planned purchase of Motorola Mobility for $12.5bn left the industry in a state of profound shock. Motorola spun off its mobile phone business in order to see if it would sink, swim or be taken over by someone else.. so a takeover was not unexpected. But Google? Yes, almost all Motorola handsets run Android (but not, in fact, every single one),  but as a manufacturer Motorola Mobility is in a weak financial position.

Perhaps the real reason for the purchase is Motorola's huge collection of patents - 12,500 of them at last count with a further 7,500 pending. Increasingly, the mobile market seems to be about who claims to own what patents for what technology, and Google actually owns relatively few of these in this sector.

Although Google's Android partners are nominally supporting the planned acquisition, it must be crossing their minds that Motorola may get an unfair advantage.

It could be that Google intends to strip Motorola of its valuable patents and then sell it on. We wouldn't fancy the chances of a post-Google Motorola in this case. And indeed, the whole takeover seems fraught with dangers for both Google and Motorola.. $12.5bn is an awful lot of cash, even for a successful business such as Google.

 HP webOS HP kills webOS

Just days after the Google-Motorola deal was announced, HP announced the failure of its webOS platform that it bought along with Palm and terminated its smartphone and tablet business.

Sales of webOS devices, especially the TouchPad have been pretty miserable, despite HP's enormous resources and a large advertising campaign in the US.

 HP TouchPad If a company the size of HP couldn't turn around Palm and webOS, then you might assume that it was impossible to save that platform. But HP has a very poor record in the mobile handset business - it failed to transition the iPAQ from a PDA to a smartphone line - and even more shockingly it looks like it might sell off its PC manufacturing business, despite being the world leader.

Although webOS was a pretty decent OS, it really didn't add much to a maturing smartphone market. It might pop up again in embedded systems, but the demise of this platform is not surprising although still rather sad.

Ironically, HP TouchPads have now sold out since retailers in the US and UK dumped their stock at as little as $99 and £89 respectively, and HP are now dumping stocks of the Pre 3 in Europe as well. So a lot of people will new experience just how good webOS is.. now that it has gone.

Perhaps the main worry is that if a company like HP couldn't successfully run a business like Palm, can Google succeed with Motorola?

Apple vs Everyone

Apple didn't invent the touchscreen smartphone or the tablet computer, but its patent lawyers seem to think differently. Over recent years, Apple has sued just about every competitor over alleged patent infringements. Many of these companies have counter-sued Apple for similar patent infringements, and some (such as Nokia) have settled complex lawsuits.. for now, that is.

Although patent lawsuits are not new, Apple seems to have upped the stakes with a determined effort to drive some of its competitors out of several key markets. Samsung - one of Apple's biggest competitors - has come under fire in courts in Germany and the Netherlands in a move that appears to be an effort to stop sales of virtually all Samsung smartphones and tablets. But who supplies Apple with displays and processors for the iPad? That's right.. Samsung.

Motorola and HTC have also come under attack from Apple who are targeting Android manufacturers. In our view, there is something seriously wrong when a company such as Apple seems to be determined to use lawsuits over questionable patents to drive competitors out of the market. It is no surprise then that Google have moved to strengthen their patent portfolio, and this endless round of court cases looks to get even nastier as a result.

Oracle vs Google

You might not have heard of Oracle, a company that sells no consumer products or devices and that basically relies on selling database systems to corporate customers. But Oracle has filed a major lawsuit against Google over alleged patent violations in their Java platform.

Oracle are not an innovative company in the traditional sense, but they are cash rich, and they used some of that cash to buy Sun Microsystems, a company that was innovative.. until Oracle bought it. Now, Oracle seems to be more interested in squeezing Sun's patent portfolio, and are asking for up to $6bn dollars from Google.

If Google loses the lawsuit and Oracle get their way, then Android will either have to be rewritten or it will no longer be free, damaging the Android platform in the market. It is likely that Oracle's real aim is to damage Google by damaging Android, because Oracle doesn't compete in that market, but Oracle and Google do compete elsewhere.

Microsoft and Nokia

Nokia's decision to ditch pretty much everything and go with Windows Phone is well known. But there have been persistent rumours that Microsoft might buy Nokia outright, which would be  a bold move.. but not an unthinkable one in the light of the Google-Motorola deal.

Microsoft want to see Windows Phone succeed very much indeed, and taking control of what is still the world's largest phone manufacturer may well help it. But there are several reasons why this might be a bad move: firstly, Microsoft will keep other partners happy if it remains neutral (unlike Google with the takeover of Motorola); secondly, Nokia needs Windows Phone to succeed to survive, so Nokia are motivated to pull out all the stops in any case; finally, even Microsoft might admit that they don't have a great track record with own-brand mobile devices after the KIN disaster.

Indeed, Nokia is so desperate to succeed with their upcoming Windows device, that the forthcoming MeeGo based Nokia N9 isn't even going to be sold in most major markets, presumably so as not to damage sales.

Still, a takeover is a tantalising possibility for Nokia stockholders, and one that would have been completely unthinkable 12 months ago.

RIM

Research In Motion, better known as RIM, who make BlackBerry smartphones are also at a crossroads. Sales in the US are falling fast in the face of the iPhone and Android opposition, although in Europe sales are still looking good.

But at the heart of RIM is a chronic lack of innovation stretching back several years, and a stubborn fixation with a platform that is losing appeal for both consumers and developers. Apart from corporate customers who remain wedded to this platform, it looks like RIM's star appeal is fading fast.

RIM have a solution to this - their new BlackBerry Tablet OS (found on the PlayBook) looks like a stronger long-term platform, and it is based on the tried-and-tested QNX OS. But as HP found out, trying to sell a new operating system into the existing market is very tough indeed.

If RIM is to have a future at all, then it needs to avoid the mistakes that Nokia made and it needs to be more change agile in the future.

LG

LG Electronics is a huge company that encompasses many business activities, but recently it has struggled to make a profit while the mobile handset division has been losing money.

To their credit, LG have pushed hard to innovate in the mobile phone market with dual-core processors and advanced display technologies. But they seem to have a problem with reliability, and sales are well short of arch-rival Samsung.

LG doesn't need the mobile phone business to survive, so unless it shapes up soon then there is the possibility that the parent company may shut it down. Conglomerates such as Siemens, NEC and Toshiba are some examples of companies that have quit the mobile phone industry in the past, so it is certainly not impossible.

After the storm

These are indeed turbulent times for the industry. There is a good chance that we have only seen the beginning of industry consolidations and legal battles. The fight over patents may get much more brutal, more companies may fail, and in the end it is likely that consumers will be the ones to suffer.

 

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