Google’s purchase of Motorola, as well as HP’s exit from the PC and mobile hardware industry signals a lot of changes about where the overall industry is heading. Yesterday, I was asked what I thought the long range implications are of these changes and after a great deal of thought, I think the answer is clear. Companies that site upstream from the traditional hardware manufactures (e.g. Qualcomm and Intel) are going to lose their leverage in the marketplace. This is a broad statement, but I think easily supported by changes in the makeup of the ecosystem.
Consider this…5 years ago, Qualcomm was focused on selling the value of their chipset to mobile operators and using them to drive adoption to a long list of OEMs. When I was managing the browser at Openwave, we had a similar strategy in place. It was effective because decisions were made in a decentralized fashion and having a lot of resources from a sales perspective meant that you could drive adoption. Think of this visually as a wagon wheel with Qualcomm being the hub and the carriers and the OEMs as the spokes.
Fast forward to today…Google purchases Motorola. They use Motorola to address two principal problems: patent assertions and hardware fragmentation. Hardware fragmentation occurs when you have companies trying to differentiate themselves by building dissimilar hardware configurations. This is difficult to manage from a software perspective because it means you need to support it with many different builds of software. Google will reduce hardware fragmentation by focusing key, market differentiating features on standard hardware builds that they can introduce, and lead the market by using Motorola manufacturing capabilities.
Fast forward to 5 years from now…Google is using its position as a software provider and hardware manufacturer to optimize its platform around key hardware elements such as the chipset. The carriers have been migrated out of the hardware specification business by Google for over 5 years. Companies such as Intel and Qualcomm are being played off of each other by a few centralized platform providers (e.g. Apple, Google) who essentially control the chipset providers (and other key parts providers) market share by balancing their software optimizations. In other words, with fewer players controlling the ecosystem, parts providers must sell to “the few” rather than “the many” and have their market share dictated to them by “the few”. Think of this visually as a funnel with Qualcomm’s large sales force as the large opening and Google and Apple being the small stem of the funnel.
A relevant example in the market place today can be found in the programmable chipset market. Today, Xilinx and Altera sell their products to a small number of companies such as Cisco. Every year, they vie for a 1st place in a market that is essentially dictated by Cisco.
With less market fragmentation in the space, companies like Qualcomm are going to have to find ways to introduce fragmentation to change the fundamentals of their business or allow their market share to be dictated by a small number of companies.