Last week Baidu (NASDAQ:BIDU) confirmed that it has begun developing an operating system for smart phones. There was a lot to the announcement that invites comment, not least of which was Baidu CEO Robin Li’s remark that he wants to create a universal interface for all computing applications, and that the goal was “to let people become increasingly dependent on the Baidu box.”
I know: If such words were to emerge from the mouth of an American CEO, they would invite either ridicule or an anti-trust investigation, depending on the company. But coming from Baidu’s Li, they simply bumped the stock price.
Leaving to the Twitterverse the debate over whether Li is being realistic, megalomaniacal or both, the matter that concerns many of us who are involved with China’s mobile communications business is whether China – or the world – needs yet another operating system for smart phones.
Hang On, Here Comes Another One
The quick-draw answer would seem to be “No.” The mature and developed personal computer universe gets away with three operating system families: Microsoft Windows (NASDAQ:MSFT), Apple OS X (NASDAQ:AAPL), and the various flavors of Linux. Indeed, the mobile phone industry already has seven smart phone operating systems: Apple’s iOS, Google’s Android (NASDAQ:GOOG), Palm’s webOS (PALM), RIM's BlackBerry OS (RIMM), Microsoft’s Windows Phone 7, the mature Symbian, and the infant Meego.
In China, the list gets even longer, with at least three parallel development efforts underway in addition to Baidu’s. China Mobile (NYSE:CHL) introduced its OPhone OS in late 2009. Not to be outdone by its larger competitor, in late February China Unicom (NYSE:CHU) launched the Wophone operating system, and Kai-fu Lee’s Innovation Works is known to be supporting its own Android-based smart phone OS, Tapas.
Not only is this OS cornucopia confusing for consumers, it is frustrating for developers. While many of the operating systems are based on a common Linux core, or “kernel,” there is palpable angst about the potential for significant differences to emerge among the Linux-based systems (an event colorfully termed “forking”). Having to write an app and then either port or re-write it for iPhone, Android, BlackBerry and Windows raises development costs and pushes profitability (and uptake) further into the distance.
This is not an idle concern: As Baidu’s Li was all-too-willing to point out, the value of operating system ownership is the potential to lock people into using your service. Apple gets that, as do China Mobile and China Unicom. The mere prospect of consumer lock-in is enough to make technology executives and their investors embarrassingly emotional. Robin Li is one of a very few CEOs with enough honesty/confidence/hubris to come right out and admit that owning the consumer is at the heart of his plan.
The Hidden Hand
Be assured that the tech companies are not the only ones with ulterior motives in this battle. Throughout its recent history, the central government has been openly uncomfortable with allowing China to serve as the battleground for rival foreign technologies and standards, especially those that are critical to the nation’s physical or virtual infrastructure. China continues to try, with varying degrees of success, to displace foreign-developed technologies with its own, in wireless (WCDMA, CDMA-1X with TD-SCDMA), local-area networks (WiFi with WAPI), microprocessors (Intel X86 with Longson), computer operating systems (Windows with Red Flag Linux), and commercial aircraft (Boeing 737 and Airbus A320 with the COMAC C919), among others.
So whether or not they have incited the disparate efforts to create Chinese mobile operating systems, the nation’s regulators cannot be unhappy with them. Displacing iOS and Android with domestically-created alternatives fits nicely into the government’s modus operandi, and with the Party’s stated goal to incite “indigenous innovation” as a means to counter foreign dominance of key technologies.
Of course, lest we forget, more than China’s domestic market is on the table: Also at stake is the opportunity to capture overseas markets, especially in developing and emerging economies, with Chinese-made handsets running Chinese-made operating systems. This outcome would mesh elegantly with the government’s desire to offer competitive products that carry the added value that comes with having been designed and invented in China, not just assembled here.
The End of the Beginning
It is tempting to condemn the China Mobile OS Wars as an ill-advised, self-interested collusion between the Chinese government and local enterprises. Yet there is evidence to suggest that China’s expanding mobile OS wars are a response to a genuine market need, not just cynical corporate bids to lock in subscribers or a national effort to squeeze out the foreigners.
As of this writing, less than 7% of China’s mobile subscribers uses a smart phone based on one of the currently-available operating systems. The iPhone has been officially available in China for 16 months, and unofficially much longer; Android devices have been available for over a year. When you consider that the average mobile phone user in China changes devices every 15 months, we logically should have seen much higher penetration rates by now.
Yet after nearly a year and a half, advanced smart phones are still in the “early adopter” phase in China, with some 93% of current subscribers still uncommitted to an operating system. To companies like China Mobile, China Unicom, Baidu, and Innovation Works, this suggests that there is still an opportunity to create a new and perhaps better, more Chinese mobile operating system. The fields, indeed, are still green. Why not give it a go?
The Real Challenge: Making “More” Mean “Better”
A final but more fundamental factor to consider is that despite seeming parallels between the two worlds, we may see mobile ecosystems developing in a manner far different than those for personal computers. What is likely to happen – especially in the near- to medium-term – is that multiple mobile operating systems will evolve in parallel to deliver different kinds of experiences to different users.
The market is easily large enough globally to support a range of operating systems, each offering an experience designed around a certain type of user, and it is growing daily. I would argue that we see the early signs of that already, with Android, iOS, Windows Phone and BlackBerry all appealing to certain types of users, with less percieved substitutability than others might think. If you disagree, try using each of the different operating systems for a time. You will quickly discover that the philosophies underpinning their designs are so different as to create significantly different experiences.
In fact, I would argue that the survivability of a mobile operating system will be determined by whether it offers an experience that appeals to a distinct subset of the world’s (or China’s) subscribers. If a mobile OS is not noticeably different from its competition and perceived as qualitatively better for that group, it will succeed.
We should, then, expect to see more entrants into the mobile operating system race before we see less. Whether any or all of those survive will depend, in the end, on whether the goal behind their creation is to try to create the mobile operating system for all the people (doomed to fail), or to create an experience for a certain kind of people.
Baidu Understands the Most Important Thing
One implicit aspect of Baidu’s vision that strikes a true chord is the idea that we shouldn’t need to distinguish between a “mobile operating system” and OS environments on other devices. Operating systems should be device-neutral, with user interfaces crafted to match the device or environment.
Hardware developments already anticipate this evolution. The processing power available to mobile devices is growing at a higher rate than that on computers. We are already seeing devices in the market – the iPhone, the iPad, the Motorola XOOM (NYSE:MMI) and Atrix, the Samsung Galaxy (OTC:SSNLF) – that have power that is comparable to computers. When you carry as much processing power in your pocket or tablet as you do in your gaming desktop, why bother to use different operating systems?
Apple took the first step in meshing operating systems when it scaled down Mac OS X for the iPhone, and it will move one step further later this year when it introduces OS X 10.7 Lion (and, as I anticipated in 2007, starts adding touchscreens to its laptops and all-in-one desktops). Longer term, we’re going to see the barriers between computer software and mobile software blur, and then dissolve completely.
I expect Linux to lead the way in this evolution, but it will not be alone. If we take anything away from what Baidu announced, it should not be that the company is trying to create a mobile operating system. It should be that Robin Li has seen the future of the computing software, and he wants Baidu to take the first step toward becoming a player in that game.