Are services like HTC BlinkFeed and Zoe the only way to compete with Apple and Samsung?
Yesterday was absolutely filled to the brim with HTC One (M8) news, just as you would expect from the combination announcement/release day of a major Android flagship device. And, one of the more interesting bits of news was that HTC was not just going to release its BlinkFeed app into the Play Store, but that it would eventually be expanded for compatibility with non-HTC Android devices. The question quickly arose as to why HTC would do this, and after taking a while to ponder the question, I've formed a theory: it may be the only option left to compete with Apple and Samsung.
Here's the tough truth for manufacturers in the mobile game right now: unless your company is named Apple or Samsung, it is nearly impossible to generate meaningful profits on mobile hardware alone. For quite a while now, there have been consistent reports that the vast majority of the profits in the mobile ecosystem go to those two companies. Apple may not have a huge market share, but the share it does have is exclusively in the high-end market where the profits are the biggest. And, Samsung is effectively dominating every form factor and market segment with its myriad devices, which absorbs the rest of the profits available. For all other companies who want to be in this game, the best option (and perhaps the only option) left is to generate profits through software and services.
When the news came out that HTC would be expanding BlinkFeed to all Android devices, the most common thought was that doing this would remove a major selling point for the HTC One hardware, but that isn't quite an accurate assessment. The error begins with the idea that BlinkFeed is a major reason why customers choose to buy an HTC device, which is simply untrue. Sure, there will be those who choose to buy a One for BlinkFeed, but that is a very small population. The vast majority of users who purchase an HTC One do so for the build quality and the stereo speakers. Those are features that sell devices, not a news feed app that is only now starting to differentiate itself from options like Flipboard.
Once you remove that reason, you still need to figure out why HTC would want to expand the BlinkFeed app to more users, and the answer there is two-fold. First of all, the hope is that someone who uses and likes BlinkFeed will buy an HTC device in the future, and that the size of that group is larger than those who would choose not to buy an HTC device simply because they could have BlinkFeed on any smartphone they choose. The first hope is possible, and the second is highly likely. The other major reason to expand BlinkFeed is really the number one reason overall: it can generate revenue.
The big news with BlinkFeed from yesterday was not that it would eventually be expanding its reach, but that HTC had built an SDK for developers in order to expand content providers for the service. One of the new integrated services is FitBit, which is nice and all, but not exactly a revenue generating partnership. But, the other announced partner is the important one: Foursquare. Any time you get into the realm of place recommendations, restaurants, bars, and food deals, there is the potential for money to be made. There is no indication that there is a monetary deal in place between Foursquare and HTC, but it does show where HTC is aiming.
With the right partnerships, especially those that include location deals, BlinkFeed can certainly start generating revenue, and if nothing else that revenue can help with the cost of software development, and make each HTC device that is sold a bit more profitable. And, you can't exclude the possibility that after expanding the reach of BlinkFeed, HTC could start monetizing in other ways, like display ads, or promoted content. Anywhere you have news and linked content, it seems almost inevitable that ads aren't far behind.
And, of course, BlinkFeed isn't the only product that HTC will be expanding to other Android devices, because HTC has said that its Zoe app will also be expanding to other devices as well as to the cloud. The revenue potential here is far less apparent, unless HTC can somehow translate the photo services into cloud storage sales, but that is well down the road. The Zoe move right now has more potential to simply attract users to HTC products, like BlinkFeed, through simply brand recognition benefits.
HTC isn't the first company to take this path, nor is BlinkFeed even the first of HTC's attempts at adding services that could help generate more revenue. We all remember the failed partnership between HTC and Beats, which had that exact aim. But, the reasoning seems pretty easy to understand: it is extremely difficult to generate profits through hardware alone. Even the two companies that rake in the majority of mobile hardware profits don't subsist on those profits alone, they have software services as well.
This is why companies like Samsung, Apple, Sony, Amazon, and Xiaomi offer various media content stores on their mobile devices. It is a main reason why Google is a software and services company, and not a hardware company. It's hardware arm, Motorola, has been bleeding money for the past two years, and Google recently threw in the towel on that deal by selling Motorola to Lenovo. The thing is that companies need to get more creative with the services that they offer.
Media content is an extremely difficult business to get into, because of how crowded the space is, and how difficult and costly the licensing deals can be. When it comes to music options, any new option will have to compete with iTunes, Google Play, Sony Music Unlimited, Spotify, Amazon and dozens more. In the video field, substitute Netflix and Hulu for Spotify in the previous list of contenders, and that gives you a start. In the end, getting into the media sales business is extremely risky, but there is far less risk in other software options.
Location services are still a growing business, so there are ways to make money there. News aggregators are also big right now, and they inevitably lead to display ads. Photo services are also big. The revenue potential there isn't as strong, but the social network effect certainly is, and that can make all other services better. And, of course, there is also the aggregate effect of these software services which make your hardware more attractive through added value. Suddenly, you've created a bit of a feedback loop where your software attracts users to your hardware, which adds to revenue, and the more users on your software attracts more content partners.
The end result of all of this will hopefully be a more dynamic software ecosystem for users, and software services that are more helpful. But, there also needs to be a benefit for manufacturers as well. Opening up BlinkFeed to developers will, at the very least, also lead to new potential paths for revenue for HTC. That could mean display ads, promoted content, or location-based offers and deals. It could also mean new content partnership deals or even content subscriptions through BlinkFeed.
The new HTC One (M8) is a beautiful piece of hardware, but HTC learned last year that beautiful hardware doesn't necessarily mean that consumers will jump on board. HTC is a brand that is known for quality, but its brand name recognition has been dropping over the past couple of years. Software services are a good way to not only help boost that brand recognition, but maybe add some revenue as well.
Manufacturers need to be creative when it comes to generating profits. The old pathways are getting blocked either by dominant companies, or because the markets themselves are simply getting saturated. Software services are a relatively easy way to generate revenue, and unless you are Apple or Samsung, the best way to get users for those services is not to lock them to your own hardware.