The Hardware Company’s Dilemma

If you are a technology company not named Apple, then the answer to this question is vital to your future.

  • Share
  • Read Later
Adam Hunger / Reuters

If you are a technology company not named Apple, then the answer to this question is vital to your future. The fact of the matter is that all technology companies (other than Apple) do not solely control their own future. Samsung, HP, Acer, Dell, Lenovo, LG, HTC, Nokia and the rest must rely on either Google or Microsoft to supply the operating systems for their smartphones, tablets, or PCs. So the answer to the question of whether to use Google’s or Microsoft’s software is as strategic as it gets. Making a wrong decision could mean the end of your company.


Right now Google’s platforms are hot-ticket items. But they come with a price — or a lack of a price, for that matter. Google would prefer that all hardware that runs its software be virtually free. That may seem counter to the logic of Google releasing a $1300 Chromebook, but that is simply a strategy to take advantage of a particular market and get early adopters to pay Google for its own market research. It is actually quite brilliant.

The long game for Google, however, is one where its services are running on every device, and getting there requires that the hardware be practically free. This is the world I firmly believe Google wants to see happen. As we study average selling prices of phones, the price deflation happens extremely fast with Android devices, and this is very telling. So if I am one of the aforementioned brands trying to make money in the hardware game, I should be mindful of betting my future on a company that would rather me not make any money on my hardware. Also, Google gets almost all of the ad revenue that comes by way of Android devices. In Samsung’s case, it gets 10% but the rest goes to Google. Who really makes money in this case? If you say Google, you are correct This is part of Google’s end game. How do others make money?


Microsoft, on the other hand, genuinely wants its hardware partners to make money. This is why the company requires a healthy premium for the license of its software. The assumption is that Microsoft software adds value, and is therefore valuable. That value should translate into a reasonable price willing to be paid by the mass market in order to capture that value. This was how it worked for nearly two decades in the peak of the PC era, so is there reason to believe it will not work again with devices in the post-PC era?

The challenge with Microsoft is that its ecosystem is well behind Google’s, mainly when it comes to apps. To put all your eggs, or even most your eggs, in Microsoft’s basket brings with it the assumption that the company will yet again get it right someday, after many tries. Maybe it will.

The Universal Downsides

There are several downsides to licensing someone else’s software as the main interface your customers will be using. First, the hardware manufacturer does not actually own the end user. This creates platform loyalty but not hardware loyalty. In this scenario, the next time a consumer needs to buy a new PC, smartphone, or tablet, he or she may stay loyal to Microsoft or Google, but the previous hardware hardware manufacturer must now compete for that customer each time there’s new hardware to be purchased.

The downside of platform loyalty for the hardware manufacturer comes with the other challenge of licensing someone else’s software. Your competitors may also license that software, which makes standing out much more difficult. Differentiation must go beyond hardware, as it can begin to create customer loyalty. But when all your competitors not named Apple are running the same software as you, it makes it difficult to stand out in a crowd. I call this the sea of sameness, and it’s getting bigger and deeper every year. Standing out in a sea of sameness is the biggest downside of licensing someone else’s software.

This is why every Android OEM adds some secret sauce to its flavor of Android. In fact, it is fascinating to think about how with each new product, the Google part of Android becomes less and each OEM’s part takes over more. HTC’s phones run Sense, Samsung’s phones run TouchWiz and Motorola’s phones run Motoblur. These tactics are how each company attempts to stand out in a sea of sameness. The problem is that these tactics can only go so far.

As an industry analyst, it is this differentiating point that continually intrigues me about Apple.  Love it or hate it, Apple is the only company that runs software not found on any other hardware but its own PCs, smartphones, and tablets. In this regard, Apple is truly unique and has the ability to stand out in a sea of sameness.

This is why there must be – and will continue to be — consolidation in the hardware side of this industry. The current players, which license software from others, can not keep going the route they are going forever. Companies may take a stab at building their own operating systems in an attempt to go more vertical like Apple, but they risk losing time and resources to competitors. The platform providers like Microsoft and Google may also start making more of their own hardware, which will complicate matters even further and cause consolidation to happen even faster.

These are certainly tricky waters to navigate. Even those who have done this before are in uncharted territory. The companies that brave the turbulent waters of the sea of sameness will either sail through or sink with the flag of Google or Microsoft mounted high on their masts.

MORE: Innovation in a Sea of Sameness

Bajarin is a principal at Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to the Big Picture opinion column that appears here every week.


Sea of Sameness, Ok Bubba, lets see, by your definition MS PC OS on a myriad of different computer makers should have a problem competing with the likes of Apple and Chrome (forget ubunto linux because you can install these on any PC). However that is not the case, people buy hardware which promise gimmicky software, and hardware that in my experience most people do not use, plus they rely on name recognition to imply quality or value.

How is this any different from what phones are doing? Most people that do not read tech news, or write opinions pick a phone by the same standards, "Ohhhh I hear that the new samsung  is big and pretty and quick!" or "Appleeeee is the beshhhht everyone wants to be like them, they have great hardware and they sooooooo pretty"

But ask most consumers why their phone is great and they will say, it takes great photos, and I can play games on it and it has this app or that app (like whatsapp, or angry birds) they do not care if the OS has Sence or Android, or even what OS version they have. I can't begin to tell you how many of my friends with Androids I have told them to upgrade their OS's, and Apple owners do it because when they have to sync with urrrrgggggItunes (I puking in my mouth) it tells them there is an update, and even with this notice they are too lazy to update.

So I'm afraid that all things being equal (and they pretty much are) the winner will allways be the one with that spends the most on propaganda, and hoopla the longest. 


Not to take away from the article, but this is rather obvious. The non-Apple parties surely must know this, though doing anything about it is another matter, especially for Asian hardware OEMs/ODMs who by nature don't get software and are not product innovators (they are great manufacturers and incremental improvers). The parties that hold the keys to the kingdom are Microsoft and Google - all the others are merely pawns in the game. 

Oh - one final thought: there is a company that could pull it off, as miraculous as this may sound - Black Berry. They have software .They sure know hardware. And they have certainly been innovators in the past. The raw ingredients are there - let's hope they can stir things up!


Great view from a mobile manufacturer perspectives.

I totally agree the points laid out in the article. However, I do have several questions bugging me.

1. Platform battle as of now has been dominated by 2 companies, iOS and Android. (I think mobile OS is gaining market share as of this March, however it is still too small to mention). Do you think the future will continuously be dominated by those who are now at the top? Or will there be a underdog in this platform battle? If there is, will they start their moves as a mobile platform or will they switch to other 'unknown'/new technology?

2.  "Sea of Sameness", I liked how you put that words together. As an Android OEM manufacturer I've also grown to understand that differentiating the software/apps is one of the stickiness for the consumers to stay with our brand. However, I do feel that this is only a short-term strategy. In a given mobile device, there's always 2 factors that influenced consumer's buying decisions: 1. Content and 2. hardware. As for the content you have covered it in your article. However, for the Hardware, I'm keen to hear about your thoughts on how we can modify/change/create a hardware that can add a stickiness to our consumers.

3. And my last question, you mentioned in your article that Samsung gets 10% of Google ads revenue. How does this work? And where does this information came from? I couldn't get any reference from your statement. If you would clarify your statement it will be great.



@jezzica Sure, here are some thoughts.  

To your first point.  With where we are in the global maturity cycle, I don't see the mass market overwhelmingly supporting a vast array of platforms.  That will change and eventually the market will be so big and so segmented that it will become possible but that is not the next few years.   And yes mobile / tablet first is the place to start. 

To your second point, I think what Samsung is doing around accessories is interesting and has the potential to build hardware loyalty.   Moto did the same thing with the lapdock stuff but those accessories are too early yet still loaded with long term potential.  Services value adds are the other area I think hardware companies can look to add value.  This one is a bit more tricky for them but its an area where you can get some stickiness.

Lastly call the 10% number insight my firm has :)  


I don't get the "Microsoft wants partners to make money" idea. Microsoft wants to make money and Google wants to make money. They just do it in different ways, but to suggest that a good, free phone OS is somehow worse for partners than a good OS that they have to pay for is weird. 

The reason they're different is simply that they have different revenue streams. Microsoft makes money by licensing software to manufacturers and the more manufacturers, the better. (They compete, which drives down phone prices and theoretically results in greater volume and more revenue for Microsoft. Google doesn't make money from software but from advertisers, and the more eyeballs it can put on Internet advertising, through smartphone users, the better. The more cheap smartphones that expand the number of eyeballs, the better.


Another Pro Apple commercial.... this guys articles are all about Apple and how everybody else sucks....Not a surprise here. How much more bias can you be sir??  Like Apple is so "Unique".... I got news for you. The younger crowd does not find Apple products that cool anymore...since the older crowd is using Apple. Apple is just another company with better marketing strategy and overpriced products....

How many more Pro Apple articles are you gonna write...reminds me of John Grisham writing books about Lawyers only.... Is being  Blatantly pro Apple your Niche?


@oceanspear I have no problem being critiqued and I even love a good and intelligent debate--something we are not having here as of yet.  

When you study this industry from every angle and the companies in it from every angle you learn about the economics and what is healthy business strategy and what is not.   The bottom line is that hardware companies need to make money and right now only a few are.  This is not good.  I am yet to see a solution from MSFT and Google to turn this around.   As I engage with executives at every company on this matter it is universally agreed that the challenge of a licensable OS is differentiation and that was the point of my opinion column. 
In saturated mature markets, like the ones we find ourselves in, standing out from the crowd and marketing the ways in which you do that, is the only sustainable way forward for hardware companies.  Again something Apple is not since they are a hardware, software, and services company.  Yes they only do two of those well. 
I've heard many of the arguments like the ones you make about Apple just being a copier and they are all flawed.  It isn't really relevant where the ideas come from so long as they make it to market since that is real challenge.  Microsoft copies, Google copies, everyone does it so your point is moot.  But improving upon inventions, making them better, more useful, etc., is where the real work goes into.  
If you read more of my columns you would know I praise Google and Microsoft and others frequently.   I cover this industry from a holistic standpoint and analyze the strengths and weakness of the entire technology ecosystem.   
So while I appreciate your comment, your tone is tired and not helpful for engaging in intelligent dialogue.  Which I am happy to do should you decide to engage in it without emotion and objectively. 


@benbajarin @oceanspear  Well Ben,  I will concede to many of the statements you made on your reply. I will disagree on the one that Apple is a copier and so is everybody else. Where the misconception comes is the false belief that apple invented many of the ideas or concepts the so well market. At marketing no one comes anywhere close to Cupertino. They know how to built the hype to the uninformed and to the crowd who wants to be "cool".

Having said that Ben, many companies will go out of business and some will stay, that is capitalism. One thing that I would love to see, and I doubt will happen, is the ability to Port your digital content from one OS to the Others without any restrictions the same way you port your cell phone number for example.

One more game opener would also be the possibility that Apps are  created Universally instead of specific to OS systems and that you can purchase any OS/hardware you want without having to be married to it . That would open up the market for sure.

Nokia Symbian, Blackberry, Ubuntu, and the Samsung OS Tizen, to name a few  are worthy platforms to be considered, but The U.S market being the most profitable is closed to many of them or the ones who have access dont enjoy a level playing feel. That is shameful. I agree with you that variety is awsome.

I enjoy your column and love to play devil's advocate.  Please dont take any critique personally please.



@oceanspear I never take this kind of stuff personally and I do enjoy a good debate and informed discussion on all these topics.  

I agree with you that there is a massive misconception in general between what an invention is and what innovation is.   But its a known fact that original ideas are hard to come by so copying is not a bad thing by any means it is just the way things work.  Its more important that good inventions make it to market and that is what so many companies fail at that Apple is exceptionally good at.  I think they should get credit for the things they do well as should everyone else.  

Thanks for the dialogue and for reading. 


@oceanspear rather than critique how I analyze the industry, outline ways you see Google or Microsoft offering solutions that are contributing to the health of the industry and ways they offer solutions to the sea of sameness.

oceanspear 1 Like

@benbajarin Well Mr. Bajarin, If you dont want to be critizided, then don't write opinion columns or critique. By you writing an opinion article, you are open game. What do you expect a whole bunch of yes men here, agreeing to everything you say? where do you live North Korea?... Google, Samsung, and other companies are also being proactive in  designing new hardware... By the way... The "unique" and oh so different Apple that you fawn so much on basically copied their  OS from XEROX!! dont forget that!!, many of their designs are a basically copy of the german designer  Dieters Ram!!!  Omg!!! the so creative apple copies other people too!!!.... how about that Ben??