Connecting a whole country to the Internet is a massive task. It takes miles upon miles of cable and costs a fortune. It’s the reason that much of the rural United States has slow connectivity, and in many places, no connection at all.
It’s also the reason why mobile phones have become the primary means of connecting to the Internet for much of the developing world.
It’s cheaper and easier to set up wireless data infrastructure than it is to lay cable, so it’s easier for people to get online with a cellular device.
And with smartphones getting progressively cheaper, many are connecting to the Internet on no other device but their phone.
A recent report from the Pew Research Global Attitudes Project said:
“Across the 24 countries, a median of only 23% say they have a working landline telephone in their house, including as few as 1% in Ghana and Kenya. Instead, many emerging and developing nations have skipped landlines and moved straight to mobile technology.”
This trend has developed as cellular phones matured into tiny computers, and now the market for low-cost smartphones is estimated to be worth upwards of $50 billion globally.
Google (NASDAQ: GOOG) yesterday announced a new strategy to become a force in low-cost smartphones for emerging markets.
During a nearly three-hour long keynote speech at its annual conference for software developers, Google I/O, Google yesterday revealed a new platform called Android One.
Android is Google’s mobile operating system. You’ve probably heard about it already, as it powers more than 60 percent of smartphones in America and almost 80% of smartphones globally.
Android was created to accelerate smartphone development by offering essential system software for free to any hardware company to adopt and change. It works on a licensing model, where much of the OS is available for free under general public licensing, and Google’s value-added services are available for licensing fees.
Android One is different. It doesn’t work on licensing fees. It’s a turnkey solution for mobile phone manufacturers who want to crank out low-cost, high functioning phones with Google’s value-added services already included.
Its first target is India.
Sundar Pichai, Google’s SVP for Android, Chrome and Apps said in yesterday’s keynote that he’d been using an Android One phone for weeks already.
His device is modest by high-tech standards. It’s got a 4.5-inch touchscreen, dual-sim input for international coverage, a microSD memory slot, and an FM radio. It’s made by Micromax Informatics and costs less than a hundred dollars.
Micromax is not a name known in the Americas, but it’s the second largest smartphone company in India, and tenth largest mobile phone maker in the world. Its markets include India, Bangladesh, Sri Lanka, Nepal, and Russia.
Pichai added that Karbonn Mobiles and Spice will also be using the Android One platform in India.
Google Vs. Microsoft (NASDAQ: MSFT)
Last year, market research firm IDC found that Google’s Android had captured an astonishing 91% of the Indian smartphone market, while Microsoft had 5.4% and Apple had just over two percent.
Microsoft’s share in India is small, and it’s similar to the Windows Phone market share across the globe. Microsoft’s strategy for operating systems has always been based upon the licensing model. It collects fees from equipment makers and carriers and collects royalties from other software companies using its technology.
In fact, Microsoft reportedly made $2 billion in licensing fees from Google’s Android last year, according to a Nomura analyst.
But adoption of Windows Phone is so low that the Times of India reports Microsoft has begun to waive Windows Phone licensing fees for Indian phone makers Lava and Karbonn.
By making Windows Phone practically free to use, Microsoft is hoping to increase OEM adoption, and better compete with Android.
Android One, however, has a different competitor.
Google vs. Mozilla
If a sub-$100 smartphone sounds good, you haven’t heard of the $25 smartphone yet.
At the 2014 Mobile World Congress, open source software company Mozilla debuted a turnkey reference design for a smartphone that runs on the still brand new Firefox OS that would only cost the consumer $25 at retail.
Though the Firefox OS phone design has a smaller screen, weak processor, and low memory, it shows how turnkey designs can make phones immensely cheaper to produce.
“Turnkey solutions benefit the vast majority of small handset makers by reducing the time and cost involved in bringing new devices to market,” Stuart Robinson, Strategy Analytics analyst said in a statement from Spreadtrum (600100:Shanghai)
Turnkey designs allow small OEMs and network carriers to create cheap hardware even if they don’t have the benefit of scale like Samsung or Nokia do. If they use Android One, they get the stock Android experience, plus Google’s Play app store infrastructure, and automatic software updates just like the Android phones from major manufacturers.
Why it works
Typically, turnkey projects are undertaken by the petrochemical, chemical, pharmaceutical, and metallurgical industries, but it has a significant drawback to all of them.
For example, when a turnkey process or system is contracted out, the company it belongs to typically retains no interest in the new venture. A Web services company like Google, however, receives continued benefit because these new smartphone users ultimately connect to Google’s services.
It doesn’t need the licensing fees as much as it needs the users, so a turnkey solution gives Google what it needs, gives manufacturers what they need, all at a low cost.
