Abstract

OPhones attracted a lot of attention when they were first launched on the market. However, it remains to be seen whether the market response will live up to the expectations of the industry.

China Mobile Aims to Establish Its Own Smartphone Ecosystem

The Apple iPhone has become extremely popular around the world, and one of the key factors in its rise has been the successful creation of the App Store. Witnessing the successful business model of Apple as well as the large subscriber base in China and the country's future development potential, China Mobile decided it would develop its own platform, and cooperate with mobile phone manufacturers to create its own ecosystem. Google in 2008 rolled out its open-source Android platform. China Mobile made changes to the platform, and rolled out the OMS platform that exclusively belongs to China Mobile.

After setting up the OMS platform, China Mobile aggressively tried to expand its ecosystem. Besides cooperating with mobile phone vendors for the roll-out of OPhones, China Mobile released the SDK and set up a developer website in order to attract more application developers, and it established its own application store, the Mobile Market. With the software platform, application programs, mobile phone vendors, application software sales channels, as well as China Mobile's own customer base, significant growth can be expected for OPhones and OMS. Following the market launch of many OPhone models, China has already made the first significant step in its pursuit of an own ecosystem.

Initial OPhone Prices High; Lowering Prices and Stimulating Growth of 3G Terminals Key Challenge

The recommended sales prices of the first three OPhone models (the Dopod A6188, the Lenovo O1, LG GW880), were very similar to the iPhone prices of China Unicom. Large R&D investments are required when developing a completely new platform product, and it is hard to avoid relatively high sales prices during initial stages. As for marketing, even though a strategy that focuses on increasing competitiveness vis-a-vis the iPhone and adopts high prices is quite common, recommended prices close to 5,000 RMB (US$732.1) were still higher than the expectations of the industry, challenging the spending power of those consumers that wanted to experiment with the product. Although local subsidiaries of China Mobile rolled out their own voice call subsidies and purchase packages, the OPhones did not have any evident advantages compared to the iPhone, perhaps causing an impact on the initial growth momentum of OPhone products.

If the OPhone is to create a purchase wave in the market, prices will have to be lowered. In fact, the price of the Dopod A6188, which has relatively entry-level specifications, has dropped continuously since the start of sales. By the end of November 2009, its price had already fallen about 25%. Furthermore, the Dell Mini 3i will hit the market with a relatively low price of 3,980 RMB (US$582.7), and consumers will thus be able to choose from a large number of prices and product levels. Offering consumers a large variety of product segments will be a key element in China Mobile's efforts to develop 3G and relevant application services.

Application Compatibility between OMS and Android Becomes Critical

A key factor behind the popularity of the iPhone and Android platform products is their application developer ecosystem and the creation of well-structured sales channels for application software. As China Mobile has not obtained Google licensing, OPhones cannot directly link to the Android Market, and China Mobile has chosen to operate its own Mobile Market. Even though in theory OMS can execute most Android applications of the same version, regular consumers will not know how to obtain Android applications without Android Market. Mobile Market is a general application store, and it offers Symbian, Windows Mobile, and OMS-platform software. By November 2009, Mobile Market already featured more than 1,600 applications, but the number of applications that really belonged to OMS was limited. The insufficient number of applications will be a major challenge in the initial development period of the OMS platform.

Two options are available to China Mobile if it wants to reverse this situation. The first option is to aggressively promote the OMS platform and adopt aggressive sales methods (e.g. even more aggressive pricing and subsidy strategies). If the scale of mobile phones becomes sufficiently large, application developers will be naturally attracted to the OMS platform. The second option is to aggressively maintain the compatibility between OMS and Android and encourage existing Android developers to test their applications on the OMS platform and make these applications available in Mobile Market, so that OPhone users can buy and download them.

The development potential of JIL widgets, which China Mobile is aggressively promoting in cooperation with Softbank Mobile, Vodafone, and Verizon, lies in its strong cross-platform capabilities. They also possess application and Internet services features. If JIL widgets can really attain a high degree of flexibility (being able to call on a variety of soft- and hardware functions, and not only passive acceptance and transmission of Internet data), and if execution efficiency increases, the JIL widgets will be able to achieve strong development in the mobile application field.

Fragmentation of Android Versions to Surface

The complete opening of the Android source code creates the possibility that fragmentation will occur, similar to Linux. As in the first year the number of Android mobile phone models was still limited and hardware specifications were quite uniform, it had not yet occurred that applications were completely incompatible. However, with more and more mobile phone companies investing in Android, there will be companies that make changes to the current user interface and applications of Android (e.g. HTC Sense UI and Motorola Blur). Furthermore, Android products with different resolutions or hardware are surfacing. Developers are forced to test their applications on more and more phone models, creating resistance within the developer community.

For Android, the emergence of OMS marks a completely new milestone. Even though some companies have already made changes to the Android user interface and applications, most of these companies still cooperate with Google and feature the Android Market. OMS is the first customization project led by a mobile operator. Not only does China Mobile have the resources to make adjustments to Android and create OMS, its capabilities even enable the company to set up a whole new ecosystem and application store.

The OMS 1.5 version still features a certain degree of compatibility with Android. But from the details of the OMS 2.0 version announced in December 2009, it can be seen that China Mobile will focus on multimedia and business functions. It will not only support photos with higher resolutions, it will also make changes to the original 3D graphics engine to increase performance. As for business functions, it will support editing of office files, calendar integration etc. Flash support is added to the browser as well. With China Mobile adding more functions to OMS, the gap between OMS and Android might become larger.

Another element in OPhone development is the possibility that these products might become an example for other operators and mobile phone vendors. After all, all major operators and mobile phone vendors aim to establish their own control over their operations. In the future, it can thus be expected that more vendors will seek to add their own unique customization on Android. A key factor that will have a major impact on the future development of the Android ecosystem and relevant companies will be whether Google will be able to set up a comprehensive testing and certification mechanism in order to avoid incompatibility between different products and other versions.

Appendix

Glossary of Terms

List of Companies