One has to give credit to Huawei for realizing that it has a differentiation problem in the smartphone space, but so far its attempts to drive its differentiation beyond the hardware itself are not bearing any fruit. Its latest attempt in this direction is to join together with Google in supporting Google’s RCS based Android Messaging platform in its mobile devices and, I presume, in its infrastructure.
RCS (Rich Communication Services) is the telecom industry’s attempt to maintain a grip on messaging once it became clear that messaging was going to move to data rather than the 2G control channel. Although the technology has been around for ten years, it has never been able to compete with the ease and ubiquity of OTT apps, and so it has never gained any significant traction.
The result has been that messaging is now dominated by WhatsApp, WeChat, iMessage and so on, with RCS gaining virtually no traction at all. Even when Google threw its weight behind RCS and managed to get a several mobile operators on board, the ship had already sailed as everyone had pretty much already switched.
The one exception is Scandinavia, where SMS is still widely used – this represents an opportunity for Scandinavian operators to migrate their users, as they are yet to try something else. However, in the rest of the world I am pretty sure that RCS will remain an oddity that will eventually be forgotten.
The problem with messaging is that it has a very strong network effect where, in order to communicate, both terminals need to support the system being used. This is why SMS was so successful – it was a single interoperable standard supported by every GSM phone.
Huawei’s intention to include RCS in its devices is born from the hope that if RCS messaging takes off, it will work best on Huawei’s devices because it has designed it in from the factory. There is nothing wrong with this strategy per se – it’s just that it looks like the messaging networks have pretty much already formed, meaning that getting people to switch to RCS will be almost impossible.
Unfortunately, this means that this feature, like Huawei’s AI assistant, AI chip and its now commoditized imaging offering, will be unable to generate any differentiation for Huawei in its devices. This leaves it exactly the same boat as all of the other Android handset makers who differentiate purely on the basis of hardware. With the Google ecosystem dominating these devices, this means virtually no software differentiation at all, resulting in the widely observed race to the bottom in terms of pricing and wafer-thin margins.
The one exception is Samsung which makes good margins on Android devices, but I have long believed that this is because it outsells its nearest competitor by a factor of more than 2 to 1.
Huawei is showing very little sign of passing or even catching Samsung meaning that commodity margins are going to remain a way of life. Huawei will need to do a little better than that if it ever wants to IPO.
This article was originally published at RadioFreeMobile
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