Can Huawei deliver a Digital Life ecosystem?

Written by on July 4, 2016 in Guest Blog with 0 Comments

pixelated design of woman sprinter leaving starting blocksHuawei’s software has a better chance in China. Huawei is making the right initial moves in order to maximise its chances of becoming No. 1 in smartphones but I suspect its software has better chance at home rather than overseas. Huawei has stated that intends to become No. 1 in smartphones and to achieve this lofty goal, it appears to be developing both software and services.

  • This is exactly what Huawei needs to do in order to minimise its margin damage in the coming war with Samsung (see here), but its users will have to be prepared to pay something for its software for the strategy to work.
  • I see three areas of development:
    • First: user experience.
    • Huawei’s efforts are being led a new hire (Apple, 10 year veteran) and the aim is to lift the user experience on Huawei phones above other Android makers and thereby achieve differentiation.
    • The user experience in developed markets is already reasonably well defined but RFM research finds that in China, almost everyone struggles as 90% of users have low quality stock Android.
    • Only Xiaomi, has developed a unique user experience but unfortunately, this has done nothing to help its poor profitability.
    • Hence, I think that Huawei will have to do something very special to achieve a price premium for its products which is unlikely to last long as cool ideas will quickly be copied.
    • Second: proprietary operating system
    • I think that Huawei is also building a complete alternative to Android where it would have full control of both hardware and software.
    • This would give it the freedom to fully optimise the software to run with its silicon (HiSilicon) as well as to develop its own suite of services without having to put Google as default.
    • The problem is that outside of China and Africa, the Google ecosystem dominates Android to the point where it is almost impossible to sell an Android device without Google Play on it.
    • Google uses this demand for Google Play to require that handset makers put its services front and centre on their devices as well as precluding them from making devices based on other versions of Android.
    • Hence, while this status quo exists, the Huawei version of Android is very unlikely to see the light of day outside of China.
    • However, it is China where I see the greatest potential, as RFM research (see here) finds that all of the Chinese ecosystems except Xiaomi are struggling with a second rate user experience.
    • Third: services.
    • This is the Holy Grail because if Huawei can develop a suite of Digital Life services that millions of users love, it will be able to charge a significant premium for its devices.
    • Unfortunately, this is by far the most difficult to do as one has to both build great services and then convince the users to use them.
    • Furthermore, in both China and overseas there are bigger and stronger companies that are already dominating in the services space.
  • I find it encouraging that Huawei has understood and committed to differentiating is software as this represents its best chance of fulfilling its strategy without a substantial bloodletting for all Android handset makers.
  • I think that China represents Huawei’s best chance as it is in China where the most improvement in the user experience is needed and the this is Huawei’s home market.
  • I also see the possibility of a tie up with Baidu, Tencent or even China Mobile as possibilities as these companies have very nascent, if any, verticalisation strategies for their services.
  • Samsung’s best defence here is to get as close as it can to Google and ensure that it is Samsung devices that run the Google ecosystem to its best advantage.
  • In China Samsung has already been reduced to a low share and does not stand a realistic chance of a comeback.
  • I think that Samsung still has the upper hand as it has much better profitability than Huawei in handsets, much greater volume and an in house supply of cutting edge components to rely on.
  • Hence, I continue to prefer Samsung, Baidu and Microsoft over Google, Alibaba, Twitter and Amazon in the short term.
  • In the long term Facebook, Tencent and Apple look very interesting but they still have some real hurdles to overcome.

This article was first published on RadioFreeMobile.

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About the Author

About the Author: Dr Richard Windsor is the founder of Radio Free Mobile which is an independent research provider. The research helps clients to understand and evaluate the players in the digital ecosystem and presents a unique perspective on how all the pieces fit together in an easy to read and digest way. The product is available on a subscription basis and counts members of the handset, telecom carrier, Internet, semiconductor and financial industries as its subscribers. RFM is the land of the one man band meaning that Dr. W. also makes the tea. .

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