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Let's face it, Smartphone Hardware Manufacturers Are Dead, Long Live The Google-like Solution Providers!

Reggie Middleton's picture





 

Two and a half years ago I declared in my mobile computing wars series that Google would commoditized the mobile computing space, thereby turning the industry on its head dramatically changing business models and margin outlooks. Curiously enough, despite rampant evidence that I've been nothing but correct, investors, pundits and even leading industry participants still don't get it. CNBC ran the following article this morning... Chinese Smartphone Users Snub Apple for Local Brands

Sales of smartphones in China are outpacing sales in the U.S., and yet many Chinese shoppers are choosing cheaper, local brands, which now have more than 50 percent market share. The Financial Times reports.

What CNBC failed to realize was that the primary beneficiary of all of this is Google, who benefits from volume in handset and tablet sales, not margin. I made this point clear in my paid research reports, free blog posts and multiple interviews - to wit:

Google's "less than free" business model has successfully put it on track to becoming the next Microsoft. Once it has 90+% market share in mobile OSs (it's currently knocking on 89%'s door), it will have the door opened to lead as the de facto provider of cloud services, basically acting as the Windows operating system (remember the importance of this OS in the 1990s) of the Web. We're not even broaching the topic of Google being the shepherd of global data and information throughout the web and the Internet connected world!

Let's face it, Smartphone Hardware Manufacturers Are Dead, Long Live The Google-like Solution Providers! 

For those who disbelieve this statement, remember, there are no such things as cheap Chinese knockoffs anymore. It's all made in China, at least from a hardware perspective. The only thing that wasn't outsourced to Cheap Chinese Labor (CCL, but soon to be known as iCCL - inflation dinged not so cheap anymore Chinese Labor) was the IP and tech behind the OS and software. Here, Google easily reigns supreme, with its only viable competitors being Microsoft Windows Phone 8/RT/Pro and Apple's iOS6. Apple is nearly out of the picture, its just that the Hoi Polloi haven't received the memo yet (as was the case with our view of RIMM 2 1/2 years ago, and you see how that ended). Microsoft is simply an OTM call option with a decent amount of time premium still on it.

chinese wholesale android

Here you have a device available right now for just $160 retail, even less wholesale, unsubsidized. It actually blows the spec pants off of the iPhone 4S and keeps the iPhone 5 in the conversation - both of which are at least 3x more expensive and most likely manufactured about 200 yards away from each other! For the record, the iPhone 5 retails for $650 to $850 dollars!

phone1phone2phone3

Potentially profitable and disruptive? Ask the classified and newspaper industries (or at least what’s left of them) if Google knows what it’s doing!!!!

As excerpted from our nearly 70 page forensic Google report (Subscribers, see Google Final Report 10/08/2010), I attempt to educate on the investment prowess of Google (that is both internal investment and external acquisition). Remember, many of Google's investments have become the largest instances of their type in the indsutry. The largest web video presence: YouTube! The largest mobile OS? Android! The largest mobile ad presence? Admob! the largest online productivity suite? Docs/Drive! I can go on with Gmail, Voice, etc., but if I haven't driven the message home yet then I probably never will. Google management has made it clear that YouTube will compete with major networks and Google Docs will compete and is actually pulling some business from Microsoft Office in the Enterprise. These are mere anecdotal examples. We all know the Android story already...

Google Final Report Sep 29 Page 49Google Final Report Sep 29 Page 49

Google Final Report Sep 29 Page 50Google Final Report Sep 29 Page 50

Google Final Report Sep 29 Page 51Google Final Report Sep 29 Page 51 

Google Final Report Sep 29 Page 52Google Final Report Sep 29 Page 52

Google Final Report Sep 29 Page 53Google Final Report Sep 29 Page 53

Google Final Report Sep 29 Page 54Google Final Report Sep 29 Page 54

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

file iconGoogle Final Report 10/08/2010

A couple of bits from our archives...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

 


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Thu, 11/29/2012 - 15:47 | Link to Comment Zero Govt
Zero Govt's picture

Reggie, "I attempt to educate on the investment prowess of Google."

Question 1. for Mr Man-of-Maths. Who made $19.3 billion less profit?

A). Apple

B). Intel, IBM, Dell, HP, AsusAcerLenovo and virtually the entire PC industry.

Answer. B and the entire PC industry made $19.3bn less profit than cool King of Tek, Apple.

Question 2. for Mr Man-of-Floppy-Finance. Between Oct 2011 and Sep 2012 who made the most Net Profit?

A). Apple

B). GoogleMicrosofteBayYahooFacebook and Amazon.com combined

Answer. A for Apple who made $7 billion more than all the other 6 also-ran Teks combined wheezing in its historic corporate profitability jet-trail.

For a man (shill?) of financial analysis you're just about the biggest clown on the planet Mr Middleton. 

Thu, 11/29/2012 - 13:51 | Link to Comment Zero Govt
Zero Govt's picture

Let's face it, Smartphone Hardware Manufacturers Are Dead, Long Live The Google-like Solution Providers!

 

GOOfy Goon Smokescreens Illegal Dumping of Zombie-Tron Mobile Droid

 

(Demo from Short'n'Sweet Headline Inc Corp)  

 

Thu, 11/29/2012 - 14:03 | Link to Comment fourchan
fourchan's picture

google is the new apple.

/game

Thu, 11/29/2012 - 14:21 | Link to Comment Zero Govt
Zero Govt's picture

GOOnbubble is imploding incase you didn't notice

they're bleading red ink on Droid, they had to in their desperate attempt (going 'priceless' is proof beyond all reasonable doubt of GOOfy desperation) to overtake/monopoiise the competition who all price commercially (Reggie is an ex-Enron accountant, he can't figure profits in his biz models poor chump)

and Ad-Rev is nose-diving, again the GOOn squad are desperately propping that up with previous years profits thrown at sub-prime interest loans to their customers

we could mention Tesla, a turkey also swimming in red ink losses and State aid

we could mention their new turkey, GOOfy-Drive, their attempt to force techno-garbage down consumers throats by lobbying the State to take over driving our cars by Govt dictat

these are the assured hallmarks of a diseased monopolist dinosaur ....it's not only GOOn's products that are zombies, the company is walking dead with loser after loser... consumers watch-out before they shove any more shit down our throats 

Thu, 11/29/2012 - 14:51 | Link to Comment cocoablini
cocoablini's picture

Saying Apple iOS products are not as good as Google Android products is just silly. There are dead bodies littered in tech with "specs." Those technology specs don't mean anything if the implementation and code are not good. Apple products are JUST FINE. YES, they are overpriced but they basically have a better performance than the Google products. The touchscreens are more responsive, the code is cleaner, the OS is more resilient and the development community finds iOS easier because they do not have so many flavors of Android. As a developer, it is a NIGHTMARE to QA android devices because your app works OK on one device and poorly on another. There are hundreds of devices with flavors of Android.

I do find the camera better on Android Samsungs though.

With that said, let's step back a bit to 2001-2006 when the Danger T-Mobile Sidekick basically paved the way for Apple. Apple was going to buy the Danger Inc. platform because it invented the:

-Cloud/Client relationship,Mobile web,mobile IM chat, multiple email pop/iMAP,saved to cloud profile and settings,THE APP STORE and OVER THE AIR PURCHASES.

Like most things, Apple watched Danger and frankly stole talent and IP and made their own Sidekick with a touchscreen. Improvements were minor and limited to a great web browser and a touchscreen for a better phone experience. Steve Jobs didn't invent the mobile experience, he had moles and got Woz on the board of Danger. And as the product succeeded, Jobs decided to not buy Danger outright but make a clone of the service.

Andy Rubin, ousted by Danger CEO, made Android a 2.0 Sidekick:

  • Open Source
  • Have many, many vendors making hardware
  • Carpet bomb the world with an efficient and perhaps inferior product
  • Lose money on hardware, make money on apps, ARPU and for Google DATAMINING

So, this is what Reggie is speaking of-Google is not a hardware play. Its a dataplay, and mobile is a view into the user behavior. Saying Google is losing money on Android is FLATOUT STUPID AND YOU DO NOT UNDERSTAND THE BIZ MODEL. If Google made a toliet which told the cloud if you shat in the morning or evening it's WORTH IT TO THEM TO SELL A PRICE LOSS LEADER SO THEY CAN SELL TOILET PAPER TO YOU IN ADS.

Rubin has taken a playbook from both Apple and MSFT and playing these other companies like a cheap fiddle. Clobbering their business models, dumping on the market, getting marketshare with no intention of selling hardware at a profit. Android doesn't have to be great, but good enough.

I have both device types and Android is OK at some things and bad in others. Apple quality is sagging badly on the software front IMHO, but to be expected with the shakeups. Map app is awful.

And there it is folks-

  • Rubin invents superphone
  • Apple steals from Rubin
  • Rubin goes to Google and uses Google money to steal back from Apple
  • Apple complains that they are getting ripped off by the original victim.
  • Rubins original business model in 2000 is killing Apple's conventional business model
Thu, 11/29/2012 - 17:09 | Link to Comment Reggie Middleton
Reggie Middleton's picture

Very good summary. I concur with all except the assertion that the recent high end Androids don't trump the iOS 6 devices. They do so easily. Last year's crop may have been debatable contingent upon taste and preference, but quad core, HD and full HD devices running Android 4.1 or higher (all of them) make the iPhone look like a toy, literally. 

I had all of the devices, but in less than a month I couldn't even justify not getting my $600 back for the iPhone 5. This is coming from someone who really has no brand loyalty and very little vendor lock-in.

See http://boombustblog.com/blog/item/6178-the-truly-unbiased-iphone-5-revie... for a comparison against last year's Android tech.

Thu, 11/29/2012 - 17:41 | Link to Comment Zero Govt
Zero Govt's picture

You who "really has no brand loyalty"  ????

Ye Olde Apple-hater GOOn-luver 'logic' has surpassed delusion ..if it wasn't enough pure unbridled hypocracy to spout about Apple margin compression and then eulogise The GOOn Squads bleeding red ink zombie model today

go see a Doctor Middleton, you're totally f'n delusional

PS. are ZH snuffing my comments, i'm not getting junked at all (as usual) in this GOOfy Zombie Zone of eulogising corporates bleeding in losses, better known as Reggie's Ex-Enron Accountancy Failures Continue

Thu, 11/29/2012 - 17:46 | Link to Comment Zero Govt
Zero Govt's picture

Saying Google is losing money on Android is FLATOUT STUPID AND YOU DO NOT UNDERSTAND THE BIZ MODEL.... SELL A PRICE LOSS LEADER SO THEY CAN SELL TOILET PAPER TO YOU IN ADS.

Yes of course mate.

Run that by me again detailing GOOfy's toilet paper Ad-Rev profits to date balanced against their bleeding from the eye sockets zombie Android losses? 

How do you make profits selling Ads on a Phone, where's the space for the Ads??

Apple customers BOUGHT 3 TIMES MORE ONLINE than low-rent Android customers (WITHOUT AD REVENUE TARGETING TURKEYS). How does Apple do that mate?

When's the GOOfy Ad-Rev biz model going to start working?  ....Apple don't even try (use targeted adverts) and yet their customers spend three times more???

Thu, 11/29/2012 - 14:39 | Link to Comment SmittyinLA
SmittyinLA's picture

I luv my Nexus 7 and thank Google for making it 

Thu, 11/29/2012 - 13:09 | Link to Comment mike904
mike904's picture

Apple is, obviously a fad. The phone itself is a piece of crap. My daughters have had I this and that for years. Both of their Ipod's broke after only limited use. Our last trip to Boston we tried to use the mapping portion of her IPhone and it continually took us places we didn't want to go and asked us to turn on streets that didn't exist. Beacon Street in Boston is hardly the boonies. It should show up on maps.

 

Apple is strong because college students have unlimited borrowing power. Kids today have no concept of money. They overtip, over consume and over buy. Apple will stay strong until people have to start spending money they actually EARN... like they do in China. Nobody with a brain would pay $850 for a phone that, by the way, totally SUCKS at making phone calls. 

 

 

Thu, 11/29/2012 - 13:39 | Link to Comment pragmatic hobo
pragmatic hobo's picture

hey, these kids can always sell their organs for newest iphone ...

Thu, 11/29/2012 - 12:36 | Link to Comment Orwell was right
Orwell was right's picture

Is Reggie getting paid by Google....or just encouraging his long position.    

Several other posters here have nailed the truth....I'll just give 'thumbs up'" clicks and go back to my charts. 

Thu, 11/29/2012 - 15:04 | Link to Comment Zero Govt
Zero Govt's picture

this GOOfy goon wouldn't know the truth if he was wielding the fiery sword of truth himself and stuck it through both feet 3 times a month 

a financial consultant trumpeting margin compression but when GOOnbubble sinks in desperate red ink (priceless) he's got a fucking excuse longer than Pinocio's nose

Reggie makes CoCo the Clown look as serious as an Undertaker

Thu, 11/29/2012 - 12:33 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

Apple is the BMW of smartphones.  Image, quality, functionality, all of it.

Long as yuppies pay more for BMWs, they'll pay more for Apple phones, tablets, computers, etc.

This image thing isn't in charts, just like most human "ways" don't show up in charts.

But Apple knows all about it.  It's the foundation of their business model.

Thu, 11/29/2012 - 12:38 | Link to Comment Reggie Middleton
Reggie Middleton's picture

You guys comment without possibly having tried using the high end Android phones. They are miles ahead of Apple, miles. There is literally nothing that Apple does as good as the Galaxy's, Droid Maxx HDs and the DNAs. Apple has fallen much too far behind to catch up in a single refresh cycle, and things are moving so fast that I don't think Apple has two cycles to catch up before thier margins are materially moved to the downside from a structural perspective.

Thu, 11/29/2012 - 14:56 | Link to Comment trada101
trada101's picture

Wow, everyone knows you're biased butthis is too funny. Miles ahead? Yeah, miles ahead in the plasticy cheap feeling department.

You've got quad core monsters like the Galaxy s3 and HTC One X and yet they still can't deliver a smooth buttery experience like and old iphone 4.

Then you've got the low spec iphone 5 that is the champ in benchmarks and real life tasks.

Thats not to say the premium Android phones are crap, just not as refined and polished as the iphone. Can't tell you how many times I and other people play the "back and context menu pong game" trying to figure how apps work.

Fandroids and isheep, gotta love them.

Thu, 11/29/2012 - 14:11 | Link to Comment Zero Govt
Zero Govt's picture

Reggie "..Apple has two cycles to catch up before thier margins are materially moved to the downside.."

It'll be years before they 'catch up' with GOOnbubbles margin compression right chump?

Never takes you long to look like a complete idiot Mr Financial Anal-yst

Talking of Apples historic, globally epic record profitability, what's GOOfys miserable desperate Droid losses running at Mr Deathly Goony Silence?

...how many cycles before Ad-Rev sinks in run-out-of-previous profits to subsidise the future??

Thu, 11/29/2012 - 13:44 | Link to Comment EARLPEARL
EARLPEARL's picture

reggie,,  what is latest on penn. real estate trust...still over 16

Thu, 11/29/2012 - 13:19 | Link to Comment myshadow
myshadow's picture

It isn't so much being attached to the apple tumor, as it is which carrier you have. 

Thu, 11/29/2012 - 12:59 | Link to Comment Jumbotron
Jumbotron's picture

Uhhh...Reggie....I've never owned any Apple products much less an iPhone.  I have used Apples in work related activities since the 80's.  I know what I am talking about. 

 

And by the way....my current phone is a HTC Sensation 4G running Android 4.03 Ice Cream Sandwich....nice phone.....but it's no iPhone....nor is there any eco-system for it.

Thu, 11/29/2012 - 13:20 | Link to Comment ilovefreedom
ilovefreedom's picture

the sensation 4g is not high end, the hardware and softeware is over a year old. Check out an HTC DNA, Galaxy S3, Note 2 or even the aging HTC One X for a proper comparison.

 

Thu, 11/29/2012 - 13:30 | Link to Comment Jumbotron
Jumbotron's picture

the sensation 4g is not high end, the hardware and softeware is over a year old. Check out an HTC DNA, Galaxy S3, Note 2 or even the aging HTC One X for a proper comparison.

 

LOL!.....this is what I mean.  The Sensation 4G has better specs than an Apple 4S and nearly the same as a 5.  So it's old school at the tender age of 1 year. 

 

Always remember....IT'S A FUCKING PHONE !   Not an object of penis envy over specs.  Besides....having great specs on a shitty carrier (as they all are in the US) is like having a Lamborghini and driving it in rush hour traffic in downtown Manhattan....or the Post-Sandy Rockaways for that matter.

Thu, 11/29/2012 - 12:23 | Link to Comment hannah
hannah's picture

reggie is the king of 'i prove my point by posting shitloads of meaninless data'......all this data and what is the point. google isnt going anywhere. every 'free' product is half finished and eventually gets dropped. where is the free internet service...? how about the free cell phone...?

 

LOL...not happening. google pr hype. google is no better than any other vaporware company and will collapse....

Thu, 11/29/2012 - 12:10 | Link to Comment JOYFUL
JOYFUL's picture

Thumbs up to that! But the praxis in that statement of intent is to actually do something about the problem...

ie...manage your internet time free of the Golem. With Scroogle bulldozed. it's more important than ever to find a suitable vehicle for thumbing a nose at the gorilla....

http://searchengineland.com/scroogles-gone-heres-who-still-offers-privat... ...while none of the suggestions contained offer the same provocative and witty jab as the late lamented Scroogle, it still feels good to surf free of the ankle bracelet...sometimes less convenient, but for the greater good.

Thu, 11/29/2012 - 11:42 | Link to Comment Jumbotron
Jumbotron's picture

Reggie still falls for the old geek mantra..."But it's got better specs !..."

 

It's not now nor has it ever been about better specs.....the masses do not care or even know about specs.  They care about three things.....price, how easy will it work for me and how can I accessorize.

 

You can have one...maybe two, but you cannot have all three in Google Land.  Google is cheap....they win the cheap war.  What they lose is the how well does it work war.  Apple will always win that as they have for 30 years.  The eco-system just works better for more people than any other solution.  Google will get the market share....just like their PC bound grandfather Microsoft.  But they will never get the crowd that wants something that works better, more often and has an established eco-system of standardized, high quality and innovative third party add-ons better than Apple.

Thu, 11/29/2012 - 11:34 | Link to Comment jimijon
jimijon's picture

Hmmm, 

Trends vs Interruptions.

Google is now just starting to feel interruptions. And there will be more on the way for their business model. And as the Android fractured crap at the low end sell, sell, sell to billions who can't afford to send another 99cents, the hardware will get cheaper and cheaper. And, well made hardware will always sell.

Next competition... MS is going after Google. Apple is pruning Google everywhere. And admob sells to android users who as mentioned above can't even open another 99c account.

It will be interesting to say the least. I made a nice little bang on buying Apple Options the other day after all the doom and gloom and downdraft. That was a nice win. Now I am back out for a while... though Apple calls vs Google calls are looking better to me in the next sixty days.

 

Thu, 11/29/2012 - 14:56 | Link to Comment Zero Govt
Zero Govt's picture

Reggie only sings GOOfys praises, he ignors their ever growing failings (at his peril)

He bullcraps about hardware being a dead Dodo but how does pea brain imagine GOO can shovel their garbage free in manufacturers cornflake packs without hardware?

And what is the GOOfy Shop doing selling Nexus 10 ?

Reggie cue-jumped for iPhone5 but word is the GOOfy peddled "2-3 weeks" cues for Nexus 10 are pure fantasy and the products are shipping same/next day. The GOOfy Shop only has a handful of products yet again word is GOOn couldn't organise a piss-up in a beer factory

Apple customers spent 3x more online over Thanksgiving than GOO's low-rent customer base, haha :)

Apple has just clawed back market share in the US over Android as well. Meanwhile Microshits 'Slate' is riddled with bugs (surprise surprise) and they-ve paired back Asian orders from 4 million by end of 2012 to 2 million, an epic miscalcualtion. Consider Apple sell nearly 5 million iPads a MONTH

Reggie is blowing his trumpet wheezing on a tired old nag his fiery sword of truth well and truly stabbed through both his size 19 clown feet. Beyond a joke

Thu, 11/29/2012 - 11:15 | Link to Comment williambanzai7
williambanzai7's picture

"We're not even broaching the topic of Google being the shepherd of global data and information throughout the web and the Internet connected world!"

We are now entering the Reggie Google Event Horizon.

All your datas are belong to us. Long live the Borg cloud.

Fuck that shit from both sides to tommorow. All my datas are belonging to me and only me.

Thu, 11/29/2012 - 12:09 | Link to Comment alien-IQ
alien-IQ's picture

Google, CIA Invest in ‘Future’ of Web Monitoring

http://www.wired.com/dangerroom/2010/07/exclusive-google-cia/

Thu, 11/29/2012 - 11:14 | Link to Comment Reggie Middleton
Reggie Middleton's picture

until you send an email through pipes you don't control, to a server you don't own, using software you didn't code. Or, until you post on a website without spoofing your IP address, thereby revealing your location and posting habits, or until you use your...

You see, it's not easy to keep full control of your data while still engagng in an intercennected web community.

Thu, 11/29/2012 - 11:23 | Link to Comment williambanzai7
williambanzai7's picture

Yes, yes. The surveillance state. I am slightly familiar with it and what needs to be done to resist it.

Thu, 11/29/2012 - 11:29 | Link to Comment Reggie Middleton
Reggie Middleton's picture

Hey, I'm about as paranoid as they come. Although as said in those cheap B class movies... It's not paranoia if they're really after you...

Thu, 11/29/2012 - 11:50 | Link to Comment Vendetta
Vendetta's picture

As long as you or I or whomever, remain a needle in a mile high haystack of useless 'private data' to a political corrupt system, we will remain largely invisible.  The data is mostly only useful for worthless marketing campaigns,  nefarious political purposes (when they might want to single someone out) and petty criminals who want to steal some money thru various means.

Thu, 11/29/2012 - 14:05 | Link to Comment williambanzai7
williambanzai7's picture

I got news, if you hang around this crowd (which I wholly encourage), you are not a needle in the haystack. You are a bullseye. The only way to be absolutely safe is to drop from the main grid.

Thu, 11/29/2012 - 19:58 | Link to Comment Vendetta
Vendetta's picture

I have been around here for awhile, perhaps you are correct but dropping off the main grid isn't the simplest task.  I know someone who did just that and voila' the IRS found him and he got penalized for not paying taxes since 1995.  He had to make some money to build up his sanctuary in the middle of nowhere (gold/silver area actually) and that was screwed up his master plan.

Thu, 11/29/2012 - 14:43 | Link to Comment Zero Govt
Zero Govt's picture

Banzai, no point discussing the matter with Mr Middleton, he's plugged into the Monopolist (GOO) Matrix ...he doesn't even respect peoples surfing privacy as he stated on his Big BS Blog some months ago

which by pure coincidence is the GOOn squads entire biz model

Thu, 11/29/2012 - 12:34 | Link to Comment Zer0head
Zer0head's picture

Good evening, Twitter. I thought it time we had a little talk. Are you sitting comfortably? Then I'll begin...

Thu, 11/29/2012 - 11:08 | Link to Comment Joe Davola
Joe Davola's picture

Not to mention the NSA/CIA payments for being defacto BigBro.

Thu, 11/29/2012 - 12:24 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Even KGB is use for payments.

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