Vertical integration is a term most tech enthusiasts will immediately recognize as being very Apple flavored. Hardware and software are both created by Jobs’ company and he reaps the benefits of that. It also leads to a much more controlled environment for his customers. Nothing goes in the hardware or software that could negatively affect the user experience (at least, that’s what Steve-O says – we’ll ignore antenna gate for the sake of this argument.) Some like this safety net, others loath it and do all they can to break free and imprint some essence of individuality on their products. On the iPhone, the most common route is jailbreaking. But, with iOS 5 including many of the added benefits previously available exclusively through Cydia, Cupertino are eliminating much of the need for this act of supposed rebellion.
Now, we know that this system works very well for Apple. The cool $70-something billion in the bank is proof of that. Google, on the other hand, has thrived off people’s desire for customisation and openness. The software is open-source. The Android market – until recently – has not contained any real method of vetting apps to prove reliability or quality. “Let the customers decide” is the Android way. It’s been the same way with the entire operating system. The software has virtually always been freely available for any manufacturer to use. There is a plethora of brands churning out Google-powered handsets: Motorola, HTC, Samsung, LG, ZTE, Sony Ericsson, to name but a few. Then, slowly, things started to change.
Amazon launched its “Appstore for Android”. Apple tried to sue, as expected (apparently App Store and appstore for Android sound so similar that users will get confused). This app store was not and is not the same as the Android market. Amazon put in quality control, and added an element of restriction. It’s not as if Google had been struggling to sell devices. But many complained, and still mutter about the quantity of poor, unreliable apps in the market place. Granted, that’s not the case with most popular apps designed by bigger companies and game studios, but it’s definitely an issue with lesser-known apps. (I’m not saying there aren’t poor quality apps in the iTunes App Store either, there are plenty. They just manage to get through because they don’t crash so much, or contain any indecent images of women.)
Google’s model has been working great. Until the past 6 months, the operating system has done nothing but grow; from a little known obscurity to a 50% smartphone market share. However, with the launch of the Verizon iPhone in January, it appears that growth has halted – for now. How has the search giant responded? By purchasing Motorola Mobility. Android will still be licensed out to other manufacturers – Samsung and HTC have both expressed their happiness with the Googorola deal (weird) – but clearly there will be some vertical integration involved.
Google now has the chance to have its cake and eat it, have both sides of its bread buttered and see just how green the grass is on the other side while keeping its feet safe at home. (Apologies for the over enthusiastic use of cliché.) Motorola handsets will be designed specifically for Android, and vice versa. Does it signal the end of other manufacturers using the OS? I sincerely hope not. But it does show that perhaps Google realises the strength Apple has in this method of operating and is attempting to replicate something as successful. A true iPhone killer could be on the horizon.
But by no means is vertical integration the be-all and end-all. Clearly there needs to be much more than that. The hardware needs to be quality and it needs to capture the imagination of the public, not just some tech enthusiasts – like me – who spend all day geeking it up online. This has never been more apparent than the recent HP decision to cease creating webOS devices. Hewlett Packard designed both hardware and software in-store for its smartphones and tablet. The Pre 3 and TouchPad showed clear potential, but only because they were loaded with webOS. The hardware, although better than a good number of alternatives, was not fantastic. The powers that be clearly had no real intention of giving it a go. HP’s big cheese is not comfortable in the consumer market and would rather leave that to someone else.
Another case of vertical integration not working is the Kins. The Microsoft handsets failed, really badly. The phones were pulled from the market place quicker than you can say “what’s that stupid circle button thing in the middle of my screen?” The Kin’s problem was that it had both poor hardware and software. Which is why I really don’t get HP’s recent statement. Surely if you have what is potentially the best mobile operating system around, you make an effort to build a suitable handset to match it. Instead the design team was lazy and simple re-hashed a design that has only seen moderate changes since the original Palm Pre. Don’t get me wrong, it’s a good handset. Just add some class to it, slim it down, improve the keyboard. But most of all, market it like you give a damn.
Clearly, in answer to the question posed in the title, it’s not all about controlling everything in house. But, with companies like BlackBerry and Apple getting a good combination of handset+software, it shows how successful you can be when you get it right. When you get the perfect formula you gain respect, popularity and more importantly: mindshare. How many people do you know at work, school or at home that would know what you were referring to if you spoke about the Palm Pre, or the HP Pre 3? I know barely any, and that’s including former colleagues at the phone stores I used to work in.
Simply put, Google got the licensing open sourced angle right. Apple got the all in-house model spot on. But Apple makes a lot more money, and ultimately, that’s what a business wants, and that’s why Google bought Motorola. The profit margins, if the buy-out is used to its full potential, will be huge. But, if Android – like webOS – ends up on a poor piece of kit, it could be disastrous.
What do you guys think? Is there a right way to make smartphones? Should it be all in-house like Apple? Or is the open source/licensing model more appealing? Comment below, or tweet me if you can fit your thoughts in to 140 characters. @TiP_Cam