Thursday, December 21, 2006

IPhone, Google Phone what next?

Today I was reading articles about Google phone and I have been reading similar articles about Apples IPhone over last few months .One question that has always poped in my mind is why is such speculations about these 2 companies in general and also pertaining to their speculated phone plans in particular. In this posting I try to put my thoughts and answer to those questions.

Both Apple and Google have been phenomenally successful companies in post dot com bust days, Creating a legions of fans both in consumer and stock market world .Both these companies offered easy to use products and were able to monetize their success with consumers into real profits gaining them star status in stock markets. Both these stocks have high valuation compared to their counterparts in their industry with PE of 58 for Google and 38 for Apple. Which basically means markets expects their financial performance in future also to be spectacular. So what it means in reality to these 2 companies is that they should churn out again world beating products like Google search or Apple Ipod to generate high growth and justify their present high valuation .Considering the fact that both these companies are leaders in their respective markets with high market share they both are forced to view market opportunities in other industries .But in reality there are very few industry or segments were there is huge revenue potential to justify these companies attention .As I have already posted in my earlier postings I believe one such field is converged device markets space with smart phones as first products with huge potentials in near term future .So it is quite logical for analyst and industry observers to speculate that these 2 companies will launch phones .

Having put my thought on why there are speculations about these companies launching phones in earlier paragraph, I will now try to put my thoughts on what are the chances that these speculated phones if launched will be successful. First I would say it will be really challenging task for both these companies to develop and launch even a moderately good phones .But the markets expectation is that they would be able to launch phones that not only leave up to their brand name but also challenge the industry leaders which according to me too much to expect .Some of the reasons for such pessimistic view are

  • Mobile phone is still complex industry both because of technology involved and also due to non existent standard hardware architecture .What it means is it is not easy for new players to come and produce good phone without prior experience and IPR in this industry. So they can’t rely on ODMs alone like in other electronic and PC industry. One example to prove my point is Microsoft is working with HTC for at least 3-4 years now they are able to produce decent phone after several mediocre attempts. So both apple and Google have any prior experience or IPR in wireless handset industry are in serious disadvantage.
  • Customers: Even today mobile phones major sales channel is mobile operators which mean phone manufacturers need to work with them to produce operator specific variants which are not easy especially for company like Apple which is known to be company that loves to control total user experience. And wouldn’t like to make compromise with operators on this issues.Ofcourse they can try to sell directly to consumers but without operator subsidies for device the price wont be attractive for mass consumption meaning it will remain niche market.

So not limited to above 2 points but also due to many other reasons like competition from existing well established brands like Nokia, Motorola I think the chances of apple and Google pulling of successful products in this space is very low –But at the same time if they eventually launch phones as speculated and are truly successful it would be really a remarkable achievements and proves that both these companies are really not ordinary companies.

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