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13.976 characters / 6 pages
29-11-2017
CBS: E-Business Master
Research in Motion: The Mobile
OS Platform War
Strategic and Tactical Tools for E-Business – Home assignment
Mads Krogh, Calin A. Buruian, Giancarlo M. Guerra-Salvá, Filip Hein
Group 12
CPR: 300194-2793, 080593-3275, 150992-4127, 031286-2441
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Contents
Question 1: What is Apple’s approach in increasing lock-in? ……………….. 2
Question 2: How does the use of open-source influence lock-in? More
specifically, how does open-source help Android establish its leading
position in the mobile OS market? …………………………………………………… 3
Question 3: Discuss Microsoft’s decision and strategy of entering the
Mobile OS market from the perspective of lock-in ……………………………… 4
Question 4: How should RIM proceed to compete in the mobile OS
market? ……………………………………………………………………………………….. 5
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Question 1: What is Apple’s approach in increasing lock-in?
Apple’s strategy for tying in customers to their products consisted in offering superior
hardware and software products at an affordable rate to consumers. By the time the
iPhone was launched in the consumer market, Apple had already set itself apart as the
premier provider of designer-quality hardware products. For example, Apple responded to
the surge in popularity of MP3 files by releasing the iPhone. This device was not only
regarded as lightweight and sleek, it also outperformed in terms of storage space at 5
Gigabytes (or 1.000 songs). The success of the iPod not only served to lock-in Apple’s
dedicated customer base. Subsequent iterations of the iPod could be used by Windows
users, and thus significant Windows customers who never owned an Apple product were
convinced to switch over to Apple products instead.
To fill the void the closure of Napster, a popular but illegal filesharing site, created, Apple
launched the iTunes store. the iTunes store enabled users of iPod devices to legally
purchase songs for 99 cents or an entire album for 9.99 USD. It also allowed users to
manage their purchases by grouping them into playlists. Finally, the iTunes store allowed
users to listen to their music practically anywhere: both on-the-go with an iPod device or
streaming the song from the user’s PC/Mac. The wild success of the iTunes store
positioned propelled Apple’s brand perception and further contributed to the acquisition
and subsequent lock-in of customers.
Apple further increased lock-in with the launch of the iPhone. The brand perception Apple
had acquired with the previous releases of the iPod and the iTunes store gave Apple
significant bargaining power with wireless carriers. Using this bargaining power, Apple
negotiated conditions where the iPhone would be released to the consumer market
exclusively through AT, a US based wireless carrier, but with key concessions made to
Apple. Apple was allowed to circumvent convention and sell third-party apps directly to
iPhone owners. On top of that, Apple was able to convince AT to allow iPhone
customers to activate their phone through Apple and not through AT. Furthermore,
Apple was able to retain complete control of the phone’s look. This meant that the phone
was handed to customers without any third-party logos other than Apple’s. Perhaps
Google’s Android devices were more widespread in usage, but Apple’s succeeded in
creating a hyper-loyal customer base who would never dream of switching from Apple
products once acquired.
Apple also approached lock-in from the perspective of content creators. By providing
mobile application developers significantly better payment conditions, Apple convinced
many of them to create content for Apple’s App store. For developing an application, a
developer would receive a 70% of all profits, the other 30% being Apple’s commission.
This encouraged these developers to forego development for other platforms such as
Android and Windows and instead focus almost exclusively on developing for the iPhone.
Combined with aggressive advertising with ad campaigns such as “there’s an app for that”,
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attracting developers to create content for the Apple App store drove further lock-in of
existing and new users.
And the master-stroke to complete lock-in? Apple’s pricing. By creating alternative revenue
streams by way of iTunes and the App store, the incentive was thus to have customers get
their hands on an iPhone device. The upfront price of the device lost its protagonism.
Apple offered the iPhone at a significantly discounted rate from other competitors and
previous models. While previous smart phones could cost upwards of 400$, Apple and its
carriers subsidized the price of the iPhone to eventually drive it down to 199$. By doing
this, more users could acquire an iPhone in relation to other providers, thus completing the
cycle of completely locking in users to the Apple service.
Question 2: How does the use of open-source influence lock-in? More
specifically, how does open-source help Android establish its leading
position in the mobile OS market?
Being exclusive does not always make you desired, especially if your consumer can not
afford your product. We believe this principle stood at the basis of Google`s move into the
mobile OS market. With the 2005 acquisition of Android, which made nearly no waves in
comparison to a tech giant`s acquisition nowadays, Google get their foot in the door on a
new market, mobile OS market. They managed to become market leaders only by being
the other accessible option to Apple`s IOS without major innovative breakthrough.
As stated in the paper, Android remained true to its Linux nature and offered an opensource
platform. One might ask why is Android a success by being open source whereas
Linux, again an open-source was not. We believe the answer lies in the fact that the
mobile market, at that time, was at its incipient phase and both the consumers and the
creators were hungry for innovation, whereas the desktop market already reached the
maturity phase. Through this strategy Android managed to create momentum among
developers and third party-hard wireless carriers that did not have to pay a fee on using
their mobile OS. Because Google was able to generate profit from other business sectors,
in terms of Android, they could focus on growth, hence the free usage of the source code.
The reason it became “sticky” was that applications could be downloaded from different
app stores and anyone that wanted to create and sell applications was able to do it. This
was in fact the first stage of lock-in, which later developed in every tech or non-tech
company with an online presence needed to create internally an Android team in order to
serve a big piece of their target group.
Although Google was not directly monetizing the wide usage of Android by telecom
companies, they had a lot to gain from the increase of mobile internet through efficient
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sales of advertisements. Through this strategy Google managed to serve various
consumers segment groups and sign contracts with most OEMs which enabled a greater
reach and availability. Therefore, closing solving the issue many tech companies, big or
small have with identifying what should come first, “the chicken or the egg”. Which is just a
popular way of pinpointing how a company should create it`s go-to-market strategy when
launching an innovative, disrupting product or service; attracting their first users and
afterwards bringing more partners to serve demand or the other way around. However in
Google`s case they have successfully managed to resolve both sides of the equation
therefore closing the cycle and starting the lock-in effect.
Question 3: Discuss Microsoft’s decision and strategy of entering the
Mobile OS market from the perspective of lock-in
In 1998 Microsoft for the first time announced their mobile strategy. This strategy was from
the start build on a cautious foundation as the previous failure of the Apple Newton
according to Bill Gates had reminded the company that a breakthrough technology does
not guarantee great business success. Hence, Microsoft announced an implementation
mobile OSes very much in line with the company’s existing desktop based product line.
The OS constituted a “slimmed down” version of an operating system (i.e. Microsoft
Windows) and was coined as a “PC companion”. In other words, it was not thought as a
substitute to the PC and Windows but rather an add-on product that complemented
Microsoft’s existing product line. Moreover, as with PC’s the company would not produce
produce hardware themselves but instead license the OS to OEMs. While outsourcing
hardware, Microsoft was adamant to keep tight control with the design and quality of
software by restricting third parties to alter software. Some observers saw it, like Microsoft,
as another lock-in to the company’s already dominant product suite. For instance,
Netscape worried that it would further cement Microsoft’s dominance of the entire
information infrastructure by including the new paradigm of mobile OSes. However, Both
Microsoft’s hope nor Netscape’s fear had failed to materialize by 2012. On the contrary Bill
Gates’ hesitation in 1998 around the potential of mobile OSes appeared highly reasonable.
While Microsoft’s PC products continued to do well, the market was stagnating next to
mobile where the company on the other hand had failed to make a significant impact with
Windows Mobile, compared to Apple and Google.
The relative failure of Microsoft’s mobile strategy can arguably be attributed to a number of
strategic, a number of which being related to the concepts of lock-in and network effects.
First, the company’s hard-line with regards to software and third party development made
it less interesting for both independent developers and software businesses to provide
software for Windows Mobile, and thereby it became more difficult to create the developer
lock-in that platforms such as Apple’s IOS and Android enjoyed. Secondly, fewer
developers for the platform meant less competitive apps for users, in turn reducing lock-in
of mobile customers. Hence, the software part of Microsoft’s mobile strategy arguably
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failed to take advantage of the positive effects that usually comes from open source and
hardware outsourcing. This becomes clear when looking at Google which, similar to
Microsoft, used hardware OEMs while likewise allowing third-parties to modify software,
unlike Microsoft. By doing this, Google has managed to lock-in developers by providing
them with an easy to use and wide ranging platform to develop for while creating lock-in
with users due to a large diversity of both software and OEMs. Finally, Microsoft’s strategy
around mobile was arguably flawed from the beginning due to the large focus on its PC
business. By focussing on PC lock-in, the company failed to see and pursue the prospect
of mobile becoming a whole new paradigm even larger than that of the PC. Windows
Mobile was build to be a part of the Windows on the PC, not an independent ecosystem
with it’s own lock-in and network effects.
Question 4: How should RIM proceed to compete in the mobile OS
market?
To answer this question, it is necessary to look at the mobile OS market leading up to the
year of the case, 2012. While RIM had a large sale of devices in the late nineties and saw
continued growth through the early 2000s, RIM struggled to keep their market share in the
wake of the Apple iPhone and later the open source Android eco system. By end of 2011
Android had over 47 percent US market share with Apple’s iOS accounting for a further 30
percent. RIM’s BlackBerry was left with only 16 percent. Global market share was even
worse for RIM. Although RIM had taken steps to become competitive again, such as the
accusation of QNX, it seemingly hadn’t considered if it was too little too late.
Nokia, one of the largest phone manufactures in the world had struggled with its own
mobile OS named Symbian. From 2009 to the end of 2011 Symbian sales went from a
global market share of over 50 percent down to less than 10 percent, and in the end
Symbian was abandoned for Microsoft’s phone operating system. But this did little to turn
the tide for Nokia. Surely RIM must have noted the demise of Nokia, and the subsequent
failed revival attempt by Microsoft? RIM did have some unique strengths in the business
segment and tried to use them to their advantage. However, the business segment itself
had also been disrupted by the emergence of the iPhone, craving its new capabilities.
Before the measuring stick of a good communication device was its ability to provide a
stable and reliable connection along with efficient use of bandwidth. RIM were experts at
this and also delivered excellent email handling, another important measure for the
segment. But with the launch of the iPhone, a process to expand and improve the
American and later the worlds wireless telecommunications networks was started. The
iPhone was and is an excellent media consumption device for browsing the web, steaming
videos and music or using apps. While it wasn’t particularly efficient in its bandwidth usage
and earlier models struggled to keep a stable connection, these teething issues were
solved relatively quickly, and with them disappeared much of RMI’s advantages.
Optimization wasn’t as important anymore, while good user interfaces apps and media
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consumption became the yardstick of a good smartphone. And it was here that RMI
struggled to deliver, this was outside of it’s core competencies. While a prompt reaction
when it became apparent that the iPhone was here to stay might have enabled RMI to play
catch up while still leveraging its business segment advantage, by 2012 we believe it was
too late. Competing in the smartphone OS market was not feasible. But competing in the
smartphone market using Android could have been a good solution. With iOS and Android
being the de facto platform to launch apps on, plenty were available in their respective app
stores as opposed to RMI’s own struggling one. It is our belief that RMI could have stood a
chance of competing by launching a BlackBerry with Android, and focusing on delivering
good security apps and keeping their phones updated with the newest versions on Android
(Something other manufactures of Android phones seldom did). In this way, RMI could
continue to satisfy the business customers and even be attractive beyond that segment.