Analyst Angle: Handsets are becoming commoditized: An Open OS on a slab with rounded corners

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
As I review the new crop of phones being launched, one thing strikes me about the different flagship phones being promoted by the various handset makers – “these phones are all the same!”
It is painfully obvious that the mobile device world is following the PC world’s example of hardware commoditization. There are a few leading OSes emerging, and those continue to be rapidly improved by developer participation, private investment, or open source improvements. Few handset vendors can match the best-in-class OS, the rapid pace of innovation, nor can they attract developers to their proprietary OSes. So OEMs need to adopt the leading OSes or face the market with outdated phones.
But as more makers pile onto those best OSes, their devices start to look remarkably similar. Consider a smooth, iPhone shaped brick, 3-4″ screen, few buttons, USB port, and headset jack, etc. There’s not much room for industrial design differentiation. Then factor in the same OS on the inside, powered by similar processors. Most flagship devices now use a Qualcomm Snapdragon 1GHz processor. Then consider the entry of lower-cost Asian OEMs joining the parade with phones very similar to the top brand, but with lower pricing. It’s good for the consumer, but it’s going to be rough for the vendors.
So the OEMs try to differentiate their products with a few bundled apps, and thin veneer UI overlays, such as S-E Timescape, HTC Sense, or Motorola Blur. These are fine … but really there’s not much that separates the Sony Ericsson Xperia X10 from the HTC Desire or the Nexus One, is there? Especially when every UI overlay was similarly focused on a common interface for social networks. The irony was that the differentiation was all the same!
See this video in which I illustrate my point.
Analysis by In-Stat suggests that device makers fall into three camps with respect to how they will deal with device commoditization.
1. The first group includes companies like Apple, Palm, Samsung and others that want to control the complete OS and provide a vertically integrated device.
2. The second group includes Motorola, HTC, LG, and Sony Ericsson, which use the licensable OSes, and build a customization layer on top to differentiate their product can offer certain specific features.
3. The third group represents low-cost brands such as Huawei, or any number of unknown Asian manufacturers. These companies will focus on cost and try to provide good hardware with the standard OS at the lowest price possible.
The In-Stat analysis presents the classic case for commoditization. While the first group will have a difficult time keeping up with open-source progress, it will be forced to pay for ongoing development and many of these will fall by the wayside. In the second group, people will question the value of the thin veneer of customization. Many in fact will view the thin veneer as annoying fragmentation above the standard. Ultimately, market prices are driven and set by the third group who offer almost equal products to the name brands, at substantially lower prices. The only way to avoid this would be the masterstroke of a branded manufacturer innovating some kind of differentiation beyond a UI shell, and a handful of widgets – and then repeating the innovation to stay ahead. I would suggest taking a fresh look at industrial design, and some kind of ongoing service. If the guts of the phones are all the same, best to differentiate on service, the whole product, the ecosystem and the ID.
Derek Kerton, principal analyst and head of the wireless practice for the Kerton Group, a consulting firm focused on advanced telecom, is also the chairman of The Telecom Council, an association for global telco executives and their ecosystem counterparts. Internationally recognized for his telecom industry insight, he consults for companies throughout the telecom value chain (NTT DoCoMo, SKTelecom, Disney, ESPN, Sony…) and the financial community on the telecom market issues (Credit Suisse, Merrill Lynch, Dow Jones, Morgan Stanley…). Kerton also sits on numerous advisory boards, is frequent chair and moderator in telecom industry conferences globally, and is quoted, published and interviewed globally on CNN, CNBC, BloombergTV, and Wall Street Journal. More industry research, analysis, and services available from the Kerton Group online at http://www.kertongroup.com.