Now that Microsoft’s CEO, Steve Ballmer, is belatedly moving on, can the terms of the debate about Microsoft’s mobile strategy move on too? In recent years there have been oceans of words about whether the Windows giant might acquire Nokia or BlackBerry, reconcile with Intel or succeed by becoming the operators’ friend via close alliances with Orange or AT&T. The common thread in all this debate ‘ the fixation on old traditional players and alliances. Even with Ballmer on the verge of departure (well, within a year at least), most of the candidates being discussed to replace him are of the old guard ‘ internal heavyweights; Nokia’s CEO, and former Microsoft executive, Stephen Elop (despite his notable lack of success in turning the Finnish firm around); even a return of Bill Gates (most desperate of the rumors).
What Microsoft needs is new blood combined with new partnerships, preferably with companies it has scarcely recognized before. To fight back against Google, Apple and Amazon, it needs to tap into the rising tide of innovation, and the very different business norms, of Asia, particularly China. Indeed, those three great challengers also need to do some radical rethinking, soon, and learn from the Chinese market too, or they will be following Microsoft rapidly down the road to mobile and post-PC decline. Two of the most telling stories of the summer were both reported on the same day. First, Google’s VP of Android product management, Hugo Barra, jumped ship for Chinese handset maker Xiaomi (which has only been selling smartphones for two years, but has now overtaken Apple as the fifth player in China, and has a market valuation of $10bnm, higher than BlackBerry’s). And second, Apple co-founder Steve Wozniak said in an interview with CNet that Apple should work with a Chinese partner to create a low cost handset for the country, which would have “totally different features and work in a totally different way” from an iPhone, and perhaps not even carry the famous brand.
This ‘almost treasonous’ (as he put it) comment highlighted the fact that most western giants have failed to make much impact on China, partly because of official hostility (as in the sidelining of Google), but partly because of lack of effort to understand a very different market. Treating China differently (and remembering that it will influence the evolving mobile experience in markets like Indonesia too), and forming firm local partnerships, will be essential as these countries account for a rising percentage of mobile and web growth.
HTC has learned that lesson. Having spent several years rebuilding its brand and marketing strategy to appeal to consumers in Europe and North America, it is returning to its roots deep in the Chinese/Taiwanese mobile ecosystem as its fortunes fall elsewhere. It plans to develop its own operating system specifically for China, competing with Baidu, Huawei and others to define the user experience. According to Wall Street Journal sources, HTC chairwoman Cher Wang has been in discussions with officials at the Chinese government, which is keen for the country to develop its own mobile software technology rather than be over-reliant on Android and Google. The new OS should launch before the end of this year, according to the sources, and will feature deep integration with local apps and web services such as the Weibo microblogging site.
HTC has talked about developing its own operating system for a couple of years, to leverage its popular Sense user interface ‘ though it has not been clear whether it was planning an overlay, or even a fork, in Android (like Amazon’s), or a complete new platform. To gain Chinese approval, it will now almost certainly have to take the gamble on creating a Google-free environment, although that will pitch it against other local offerings such as Baidu’s Cloud OS and Alibaba’s AMOS. Other would-be Android challengers from other markets, such as Jolla’s Sailfish, are also targeting China because of its size, growth and official hostility to Google.
In reality, creating a homegrown OS may score points with the government, but it will be a tough battle to chip into Android’s market share, which stood at 79% in the second quarter, according to Gartner analysts, with the Google platform being supported by most major Chinese OEMs, such as Huawei, ZTE and Lenovo. More important is to recognize that this vast market needs a whole new approach, and that its consumers, developers and entrepreneurs are likely to drive the next wave of mobile innovation and success, not the usual suspects from Redmond and Silicon Valley.
Google, Apple and Amazon can learn unique lessons from China because, there, they face local rivals which are more dominant than they are (Baidu, Lenovo and Alibaba respectively), and not just because of China’s protectionism around technology, but because the US-centric web industry ‘ like the Euro-centric mobile industry that preceded it ‘ has not taken sufficient account of localization, or of the innovation coming from emerging markets. That issue will only get more important as India, in its way just as localized and just as entrepreneurial as China, gains greater influence in these markets.
It is vital that Microsoft’s next CEO grasps this issue too. In recent times, the mobile alliance that gave hope of some new thinking was the one with MediaTek in 2010, drawing on its OneApp and Fone+ initiatives to target new, affordable designs for emerging markets – not the one with the ageing and traditionalist Nokia. There is no point in Microsoft teaming up with firms whose vision is also outmoded and whose CEOs are under more pressure than Ballmer ever was ‘ Thorsten Heins at BlackBerry; Peter Chou at HTC; even Elop himself at Nokia are the endangered old guard, looking for a miracle cure for irrelevance, or at least a semi-decent acquisition deal for shareholders. Microsoft could do for one of them what Google did for Motorola, but it should resist the temptation of the familiar and, as it looks for its new CEO, also look for a radical new way of addressing the mobile and post-PC markets.
And that doesn’t mean getting more like Apple, or Google, since they too are no longer the cutting edge. Analysts can be as guilty as Microsoft executives of failing to adapt their thinking ‘ many of us are children of the PC, not the smartphone era, and have an inherently western focus. As we shake our heads over the loss of vision under Ballmer’s watch, the new axis, Qualcomm/Google/Apple, may already be standing on the brink of its own slow decline into irrelevance.
While it is natural to analyze the contribution and failings of Ballmer, and Microsoft remains one of the industry’s most powerful players, the terms of the debate are already outdated and almost quaint. Will Windows Phone see another generation? Will Windows RT make it as a tablet platform? And beyond that, will BlackBerry have a new lease of life by porting BBM to Android, or will Samsung position Tizen as a challenger to Google? These are issues affecting the old guard, and how long they can postpone their mobile death.
The firms which will define the next wave of user behavior in computing, entertainment and communications ‘ virtually all of that taking place on ‘mobile’ devices, even when the user is stationary ‘ have very different names. Qualcomm is still a huge influencer, but the other companies creating the ‘post-PC’ platform fall into two groups, the web giants and the Chinese companies. Some, like Baidu and Alibaba, straddle both categories, of course.
Baidu epitomizes the rise of new approaches both in the web and Chinese worlds. There is still a tendency among industry watchers, so many of them western-based, to regard China as a technology island with little influence over the overall future of the mobile experience. But it is now the largest market for smart devices and will soon be their largest installed base, and it is increasingly influencing the users and developers of the other high-growth areas such as Indonesia and even India. Companies like Baidu will soon be extending their influence round the world, directly or indirectly.
The largest Chinese search vendor has struggled to leverage its leadership in that key application to create a strong mobile platform, but that is changing. It is moving from emulating Google and borrowing the ideas of the Android community, to making original advances of its own. This month alone, it has acquired group buying site Nuomi to strengthen the vital location offering; launched a mobile payments service to help developers monetize casual and ‘lite’ applications; and announced the capability for customers to preview mobile apps without having to download them.
Baidu has made much about its rising investment in ‘lite apps’, showing that it grasps the importance of the shift from downloads to web services, and the need to provide services with a full online media experience, but which are more forgiving of small devices with limited memory and processing power. The first-time smartphone user, who has often grown up with mobile networks as their only source of computing and communications, but may have limited budget, is the growth engine for the industry. Most mobile giants have not acknowledged that just making existing hardware and software cheaper and more resource- efficient is not enough. A whole new platform is required, just a new touch interface was needed for mobile computing, not a shrunk-down Wintel device and OS.
Microsoft has virtually ignored the emerging base (it has put in many years of effort in adapting the PC to be ultra-low cost, but still brought out a mobile OS which lives most happily on very expensive handsets). BlackBerry has raced for it too late, and it may well prove that Apple has too. Android addresses almost every sector because of its wide variety of OEMs, but the Google machine behind it remains over-focused on conventional mobile norms (though, of course, Google also has Chrome OS). Facebook jumped too early into the brave new world of HTML5 and web apps, and did not have the courage, or commercial need, to stick with that coming wave. Baidu and other firms which have grown up on the web are likely to be bolder, because they need to differentiate themselves from Google and Microsoft, not ride on their success.
So Baidu is starting to think as Apple does in its best moments ‘ about how to define a user and developer experience which is fully suited to the new consumer base, rather than how to adapt an existing one. CEO Robin Li told the recent Baidu World event, as he introduced the new Light App platform: “The traditional app store model has a fundamental flaw because it only benefits a few popular apps, while a huge number of small developers are finding it hard to survive.’
Light Apps is designed to provide exposure for apps which customers might use only occasionally, and still allow them to be monetized. The search provider will build a fully fledged platform around its new offering, and has already added mobile payments, with music, video, travel guides and location services to come. In July, it acquired China’s largest mobile app store, 91 Wireless Websoft, for almost $2bn, and this month it bought a controlling stake in Nuomi to increase its appeal to China’s 464m mobile internet users ‘ and, down the road, revive its former ambitions of licensing its cloud OS and mobile platform to partners beyond its homeland.
Recent acquisitions have been firmly focused on monetizing the evolving Baidu mobile software offering, and creating a major commerce engine so that revenues are driven by services and buying, not by access or devices. This is another important feature of the new mobile guard, of course, as led by the ever-disruptive Amazon. Fees for megabytes, minutes, operating systems and even apps will become as old-fashioned as a windowing interface soon enough, and that will put the sites with a really efficient and attractive ‘ even compulsive ‘ buying experience into the driving seat. Amazon’s ereaders and tablets, and perhaps future moves to become a network operator (virtual or even real), are just channels to embed its ecommerce services into everyone’s daily lives. Baidu is addressing the same challenge, one which the traditional mobile giants have not even fully recognized yet.
So let’s stop obsessing over the legacy of Steve Ballmer, Paul Otellini and even the late Steve Jobs, and acknowledge that the mobile experience and profits of the rest of this decade will increasingly be created by commerce giants and web platform providers. In that scenario, Microsoft, Apple and the rest risk irrelevance, and must act boldly and innovatively to fend off Baidu, Mozilla, Amazon and a host of bright young entrepreneurs emerging from China.