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The 3 secret ingredients to Android success

The 3 secret ingredients to Android success

By JR Raphael

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We knew it was coming, and today it begins: Google is finally starting to put its stamp on Motorola Mobility.

The first steps in the Motorola makeover are somewhat bittersweet: Google revealed this morning it'd cut 4,000 jobs from Motorola's existing workforce in order to better focus the company on "innovative and profitable" high-end devices. It's likely the first of many changes we'll see following Google's acquisition of Motorola earlier this year.

As Motorola's new focus falls into place, I thought it'd be a good time to look at what helps certain Android manufacturers succeed while others struggle. Samsung is dominating the smartphone market, eclipsing other phone-makers both within Android and beyond -- so what's it doing that everyone else isn't?

The truth is that Samsung's Galaxy S III isn't insanely better than HTC's One X -- the two phones are pretty equally matched, and in many respects, the One X actually has the upper edge -- yet the GSIII is selling like hotcakes while HTC is watching its profits plummet.

So what lessons can Motorola take from Samsung's success? Creating quality products with enticing designs is a given; HTC has done that as much as anyone and still isn't thriving. Here, then, are the secret ingredients Samsung is using that other Android manufacturers haven't figured out. Listen closely, Motorola.

1. Focus

It may seem obvious, but if you make one high-end product your primary focus, it's going to have a better chance of standing out from the pack and succeeding. Samsung certainly makes a lot of phones beyond the Galaxy S III -- it had somewhere around 94 gazillion different models, last I counted -- but none of them gets anywhere near the level of love and attention the flagship GSIII phone receives.

Even before the Google acquisition, Motorola said it was going to stop flooding the market with new devices every other week and focus instead on a small group of "core" products. Its then-CEO made that declaration last January; Motorola then proceeded to launch a whopping 27 devices over the course of 2011. Something doesn't add up.

New Google-migrated CEO Dennis Woodside seems set on actually living up to the company's previous promise: Woodside says he intends to ship only a few key products per year, making sure each one pops for its standout hardware features.

That's focus. But that's only a third of the battle.

2. Ubiquity

You know what really sets the Galaxy S III apart from the One X? The fact that you can find it almost anywhere you look.

Samsung's managed to get its flagship device on all the major U.S. carriers, and that's an enormous win. The notion of carrier-exclusive smartphones is both dated and dumb; it benefits the carriers while limiting choice for consumers -- and limiting potential for manufacturers, too. As mobile technology grows increasingly advanced and important to our lives, this sort of one-sided arrangement looks increasingly ridiculous.

The One X may be a damn fine phone, but if someone isn't on AT&T in the U.S., it isn't an option. And that kills an awful lot of its opportunity for success. Ubiquity and focus go hand in hand: If you make a single high-end device your priority, you're going to do everything you can to make sure everyone can get it.

3. Marketing

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This last ingredient may be the biggest of all -- and for whatever reason, it's one Android-focused companies have by and large failed to grasp.

I'm talking about marketing. If there's one area in which Apple consistently excels (well, nearly all of the time), this is it: From its lavish and secretive "special events" to its massive (and massively effective) ad campaigns, there's no denying the iGang's success in this realm.

Why do you think so many people -- consumers and tech writers alike -- religiously repeat phrases like "magical," "revolutionary," and "it just works"? Those are all key marketing phrases Apple's worked hard to hammer home, both in ads and in presentations. Now, countless people chant them as mantras without even realizing they're regurgitating carefully constructed marketing messages. In reality, Apple stuff often doesn't "just work" -- but at this point, that's almost irrelevant.

With its Galaxy S III launch, Samsung strived for a similar sort of controlled impression. From prelaunch buzz to a lavish launch event and Olympic-sized promotional push, Samsung has done everything it can to make sure its phone is seen as the hot new device to own right now. And by most appearances, its efforts have paid off. Do you really think, for example, that every non-Android-focused tech writer legitimately concluded the Galaxy S III was hands-down the best Android phone available -- no ifs, ands, or buts about it? Probably not. But they sure as hell thought that's what they were supposed to think. And that's what solid marketing can do.

From the marketing itself to the mainstream media coverage it influences, Samsung has molded public perception of its product in a way no Android device has done since the original Motorola Droid. The company's message is everywhere. That makes all the difference in the world.

Put it all together...

When you combine these three ingredients -- focus, ubiquity, and marketing -- you've got a recipe for success. These three things are what set Samsung's Galaxy S III apart from other equally impressive phones like the HTC One X. It's not just the technology; it's how it's presented.

If Motorola can achieve the kind of focus, ubiquity, and marketing Samsung has delivered -- while putting out the kind of top-notch smartphone experiences it's perfectly capable of providing -- there's no reason it can't match or even surpass Samsung's level of success. Heck, maybe our friends at HTC can watch what happens and learn a thing or two as well.

In the end, Android is all about choice and diversity, and healthy competition among multiple manufacturers is a key part of that equation. I'm optimistic Motorola can re-establish itself as a prominent player in the game -- and that other skilled but struggling device-makers can follow its lead.

Your move, Motorola.

Nokia's Asset Sales: Every Little Bit Helps

By Saibus Research

We previously published a series of reports analyzing Nokia Corporation's (NOK) struggles. We actually considered investing in it 10 years ago when we purchased our first cellular phone, which was a Nokia. We can't repeat enough how Nokia has seen a reversal of fortune since 2006. Should it have retained its sponsorship of the Sugar Bowl college football bowl classic? Should it have hired Catherine Zeta Jones as spokeswoman when T-Mobile declined to renew her contract? Should it have sold Nokia Networks to Siemens (SI) instead of acquiring Siemens's telecom equipment business? Was it a mistake for Jorma Ollila to tap some lawyer to succeed him as CEO and President in 2006? Citigroup (C) had a larger than life CEO (Sandy Weill) just like Nokia and it tapped a lawyer to succeed Weill, just like Nokia did with Ollila? Should Ollila have taken more proactive steps to arrest Nokia's decline after he stepped down as CEO in 2006 but remained as Chairman from 2006-2012? Did Ollila stick around too long as CEO? In hindsight, we are wondering if Sandy Weill stuck around too long at Citigroup and if he should have sent a certified letter to James Dimon in Chicago nine years ago during Dimon s Midwestern Exile that simply said "Dear Jamie, Please come back. All is forgiven. I'm sorry if I hurt you in any way. Sincerely, your old buddy Sandy". Coincidentally, Ollila was a former Citibank banker as well as Sandy Weill and Jamie.

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Did Nokia spend too much of its research and development resources on the research side and not enough on development? Despite spending $40B for research and development versus $10B for Apple (AAPL) over the last decade, Nokia has been in its own lost half-decade since 2006. When we reconsidered investing in Nokia in February, the stock price had declined significantly from when we were looking at it in 2002. Then again, Nokia's fortunes had taken a similar decline as well. When we were looking at it in February, those aforementioned questions we enunciated here were some of the many questions we had with regards to Nokia's prospects. While Nokia has bounced off its lowest reached around the time it released its Q2 2012 results, we find that the company still has a lot of question marks hanging over it like a Sword of Damocles.

Because we are a progressive, fair-minded, objective and independent research firm, we pride ourselves on taking a fair and balanced approach to investments. We even like to quote John Maynard Keynes's alleged famous quote about how when the facts change, he changes his opinion. Regardless of whether Keynes said it or if it should be attributed to another economist, we think it's a useful quote to incorporate into our research and analysis. In addition to Keynes being the father of Keynesian economics, he was alleged to have been skilled in managing money and was an early influence to Warren Edward Buffett himself. While we think it is too early to declare that Nokia has turned itself around, we can certainly take note of when good things happen to otherwise poor performing companies.

As everyone knows, Nokia announced on August 9th that it sold 500 of its patents to Vringo (VRNG), a company that provides a range of software products for mobile video entertainment, personalization and mobile social applications. Because Vringo is an early development stage start-up that has lost $43M since its inception and since it only had $3.6M in the bank as of March 31st, it had to issue 9.6M shares at a price of $3.25 per share in order to pay the $22M price for those patents. The deal is scheduled to close on September 14th 2012. Also, as part of the deal, Nokia will get 35% royalties from Vringo to the extent that the revenue generated from Vringo's new patent portfolio exceeds $22M. The Patent Purchase Agreement provides that Nokia and its affiliates will retain a non-exclusive, worldwide and fully paid-up license (without the right to grant sublicenses) to the portfolio for the sole purpose of supplying (as defined in the Patent Purchase Agreement) Nokia's products. The Patent Purchase Agreement also provides that if Vringo brings a proceeding against Nokia or its affiliates within seven years, Nokia shall have the right to re-acquire the patent portfolio for a nominal amount. We're pleased that Nokia isn't afraid to monetize its patent portfolio in order to help bolster its liquidity resources. The market was pleased as well as shown by Nokia's share price increasing by 9.36% on September 9th. We are disappointed that Nokia is probably more likely to realize value for its stakeholders by selling off its patents than by competing in the mobile device business against Apple (AAPL) and other device makers. We think it goes back to Nokia's culture of heavy investment in research and lack of resources and interest devoted to execution and development. We are absolutely shocked, shocked that Nokia outspent Apple 4-1 on research and development and yet Nokia and Apple have seen a reversal of each other's fortunes.

Nokia also announced that it agreed to sell its Qt software business to Finnish IT services firm Digia Oyj. Neither company disclosed the value of the deal and analysts surmised that it was a fraction of the $150M Nokia paid for Norway's Trolltech in 2008. Qt software is used by 450K developers to make software applications with a graphical interface for 70 industries. Qt software was a central part of its strategy until 2011 when it decided to swap its own smartphone software for Microsoft's (MSFT) Windows Phone and the Lumia smartphone series. Digia had previously purchased the Qt commercial licensing agreement last year and will now own. This deal is also expected to close in September as well as the patent sale. Once Digia takes control of the rest of the Qt software business, it plans to enable the Qt software development platform to be used in Google's (GOOG) Android, Apple's iOS and Microsoft's Windows Phone 8 operating systems.

As Nokia is expected to make €1.9B in restructuring charges over the next 2 years, we believe it was prudent for the company to prune its non-core assets in order to aid with the restructuring in order to make it a more mobile and agile mobile device vendor. The Qt software development platform was largely used for Symbian (AKA the Burning Platform itself) and was made redundant when Nokia jumped into the cold foreboding waters of Microsoft's Windows Phone Platform.

In conclusion, we see the asset sales as a positive factor for Nokia. We're not ready to say that the company has turned itself around. We have seen a number of missteps by Stephen Elop since he has become CEO of Nokia. We believe that the performance of Nokia will be extremely binary based on its dependence on Microsoft and the Windows Phone Platform. At least Nokia did the right thing by holding its annual Nokia World Event on September 5th, one week before Apple. We believe that there is a significant level of execution risk in Nokia's shares due to its reliance on Microsoft and the Windows Phone 8. If Nokia mishandles this product launch the same way it handled the retirement of Symbian and the introduction of Windows Phone 7, it will sink into irrelevancy like the BlackBerry.

Disclosure: I am long AAPL.

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Additional disclosure: Saibus Research has not received compensation directly or indirectly for expressing the recommendation in this report. Under no circumstances must this report be considered an offer to buy, sell, subscribe for or trade securities or other instruments.

Electronic Arts: New Windows central to mobile games

By BLOOMBERG NEWS

Electronic Arts Inc., the second- largest U.S. video-game maker, is in talks with Microsoft Corp. to bring mobile games to the next version of Windows as it sees the operating system as central to its handset strategy.

"We're working very closely with Microsoft to understand what their views on gaming navigation are," Chief Operating Officer Peter Moore said in a phone interview. "Anything that allows more platforms to be adopted quickly that have a gaming element is good for Electronic Arts." The Redwood City, California-based company is counting on games on phones and tablet computers as well as Internet-based games as it tries to reduce reliance on boxed retail products. The mobile version of Windows 8, due later this year, is also central to Nokia Oyj's plan to revive smartphone sales amid competition from Apple Inc.'s iPhone and devices running Google Inc.'s Android software.

Nokia plans to announce its new line of smartphones using the Windows Phone 8 operating system as early as next month and offer them for sale before the year-end holiday shopping season, a person with knowledge of the matter said this month.

Moore was speaking before the annual Gamescom conference in Cologne, Germany, this week, where Electronic Arts will show a new version of city-building simulator "SimCity" as well as updates to its "FIFA Soccer," "Medal of Honor" and "'Need for Speed'' titles. He said the company is on the lookout for more acquisitions after purchasing game makers including PopCap Games Inc. and Playfish Inc.

''We're in a very strong position with our balance sheet and we're never afraid to use it if the opportunity arises," Moore said. "We're always looking at opportunities for us to strengthen our development capabilities, maybe our IP and maybe our technology backbone" including middleware and network technology.

Up for some rough and tumble

By LEE SUCKLING

Motorola's Defy is a revelation in mobile technology for New Zealanders - it is dustproof, scratch resistant (with Corning Gorilla Glass), and can be completely submerged in water. It beacons a new trend in mobile technology, as manufacturers finally realise that most of us are clumsy and struggle to keep our phones in pristine condition.

There is also a market of consumers that needs rugged phones more than the average Kiwi - tradesmen. Increasingly prominent in Christchurch, contractors and those who work outdoors in temperamental environments need mobile phones that can withstand drops, knocks, and splashes. However, the new Defy isn't quite enough, says one Cantabrian consumer.

'The market has now been completely dominated by smartphones which are internet and entertainment-focused, but [manufacturers and networks] have completely forgotten about those of us that still work in talk- dominant environments,' he told Fairfax Media.

For this consumer, the Defy doesn't suffice - he is still worried about having an exposed screen. 'There have been several phones in the past - the Sanyo 7050, for example - that are of flip (clamshell) design and are ideal for the kinds of work we do because they are truly 'rugged' by complying to US Military Standard 810.'

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The old 7050 has been available through Telecom and can sometimes be found on Trade Me. However, it should be noted that the use of "compliant to US Military Standard 810" is deceptive. While this standard can be obtained to provide test procedures, there is no MIL-STD- 810 compliance agency to officially certify any consumer product, meaning phone manufacturers use the claim as an unwarranted marketing tool.

However, those in need of the toughest of tough phones have other options.

New Zealand mobile networks offer a couple of suitable alternatives to the Motorola Defy (and Defy+), which retail at $599 from Telecom and 2degrees.

On Telecom, there is the option of the house-branded Telecom R54 ($249), which is independently certified with IP54 protection, the International Protection standard of shock, dust, and water resistance.

Withstanding splashes, dust and mud, the phone's internal circuitry is safe, and the battery cover is even locked down with a screw.

Vodafone offers the Samsung B2710 ($199), which is IP67 certified - heralding almost complete protection from the elements, so it is all-but-absolutely safe in environments such as dusty building sites.

It's also submersible in up to one metre of water for up to 30 minutes. Unless you actually want to drive over your phone with a truck or throw it into a lake, this model should meet the requirements of most tradesmen.

Some consumers may be wondering which rugged phones are in use by New Zealand's military and emergency services, and how such can be obtained.

NZ Police and the NZDF have confirmed primary communication from field staff is Radio Technology (RT), not cellular phones. For the police, mobile phones are just a secondary option. 'We don't issue 'rugged' phones to staff - just standard models,' says Grant Ogilvie, of the police. 'Some staff might obtain a protective casing for their work phone, and some may have a personal phone which is of the 'rugged' variety.'

New Zealand networks are understandably reluctant to import phones for individual customers, so if there is a very particular model available overseas that you want, you can buy it online yourself from an international website.

This does come with certain risks around compatibility to New Zealand networks, though. While you won't need to be a tech genius to configure a phone yourself, you will need to be somewhat savvy, although Vodafone's model- specific configuration section of its website makes it as straightforward as possible.

Vodafone will also configure an international phone in store for a fee. Consumers should beware, however; there are some issues that can't be resolved with some phones from selected countries. Problems can include dropped/missed calls and call quality issues, delayed text messages and PXT problems.

With few models on New Zealand shelves, and the expectant risk around buying online from overseas, the alternate option is to buy a parallel import. Parallel imported phones are all configured to Vodafone and 2degrees networks, and selected models are configured to Telecom's XT. These imports also come with warranties and refund policies, so are a good option for Kiwis to get the ideal mobile to suit their purpose.

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