Report: Huawei’s Harmony May Challenge Android-Apple Duopoly
(Oxford Analytica) — On June 2 Chinese telecoms and technology firm Huawei launched its own mobile operating system (OS), called HarmonyOS. The firm reportedly expects 300 million smartphones, tablets and other connected devices to run on this. If the OS succeeds, it could become a major competitor for Western technology, especially Apple's iOS and the Android operating system, in China and in the developing world. It has limited prospects of success in developed markets.
If proven efficient and secure, Huawei's HarmonyOS will likely make significant inroads into the Chinese domestic market, partly buoyed by strong support from Beijing. Internationalisation depends on HarmonyOS's ability to adapt to local market requirements and to provide a better product than its competitors in developing countries. The firm may focus on the next billion users who will come online over the coming years and have yet to be habituated to Android.
• HarmonyOS may provide a platform for the internationalisation of other Chinese products and services.
• Chinese hardware manufacturers face a tough choice between using existing global technologies or sanctions-proof indigenous counterparts.
• Beijing could diplomatically support the internationalisation of HarmonyOS.
The Communist Party has long identified China's near-absence from the OS market as a significant weakness in the drive for global leadership in advanced technology. Currently, almost the entire global mobile OS market is dominated by Google-owned Android and Apple's iOS.
More recently, US export bans against Huawei accelerated its drive to develop HarmonyOS. Because of the export bans, Huawei smartphones cannot run the most recent versions of Android or offer related Google-enabled services. Launching a separate OS will reduce that vulnerability and create a potential new platform for Huawei to grow its global mobile phone business, which is currently limited.
Benefits of control
Control over operating systems enables a significant degree of influence over the services that are run on them:
• Apple and Google have for years been able to extract significant margins from subscription fees and in-app purchases paid to developers of apps on their respective stores.
• Both Apple and Google have banned, for example, the conservative US social media service Parler from their platforms, strongly constraining its growth.
As devices grow increasingly interconnected, a mobile OS can be increasingly connected to peripheral devices, creating highly profitable ecosystems. In the Chinese case, HarmonyOS may, for instance, provide a useful platform for the growth of location-related services based on the Beidou satellite system, rather than the US-owned Global Positioning System.
In the first instance, it is likely that HarmonyOS's roll-out will focus mostly on the Chinese market.
At present, Chinese users have access to older versions of Android (on Huawei smartphones), current Android versions (on other manufacturers' phones) and iOS (Apple).
Huawei will have to convince a critical mass of Chinese consumers to switch to phones with HarmonyOS.
To that end, Huawei is seeking partnerships with domestic online service providers so that HarmonyOS can offer an attractive package for the ordinary Chinese mobile user. Already it is attempting to woo manufactures of computers, tablets, wearables and household gadgets, pitching Harmony as a cross-device platform with seamless functionality.
Meanwhile, a combination of consumer nationalism and possibly preferential treatment by government (or sanctions against Android and iOS) may well prove a powerful accelerant for its adoption at home. However, to get government support, HarmonyOS would need to establish itself as a secure, viable and efficient alternative; Beijing will not force Chinese consumers to use a malfunctioning OS for fear of triggering a backlash and reducing digital economic activity.
Expanding beyond China
Harmony may also become an important element of Huawei's internationalisation plans.
Although the system's market opportunities in the developed world look slim -- mostly because of misgivings about Huawei's security and links to the Chinese government -- significant opportunities exist in the Global South.
A major barrier to the development of OS, and one which even Microsoft was not able to overcome with its Windows OS, is inducing users to switch away from systems to which they have become habituated, for which they may have purchased ancillary devices or where they have customer accounts that are difficult to move.
However, if Huawei sets its sights on the ‘next billion' -- the cohort of consumers in developing countries in Asia, Africa, Latin America and the Middle East for whom digital connectivity is now becoming possible and affordable -- that constraint does not apply. Instead, Huawei will be able to target first-time users and create its own path dependencies.
To achieve that goal, Huawei will need to provide an attractive offering to a consumer population that is currently likely to choose an inexpensive Chinese handset equipped with Android.
Oppo and Xiaomi have not been subject to the same sanctions as Huawei, and can therefore offer a fully equipped Android system with Google services across their developing-country markets. This has helped them maintain their narrow edge in the global smartphone market over Huawei. Xiaomi has 11.6% of the market and Oppo 9.0%, according to IDA data from end-2020, compared with Huawei's 8.6%.
Tailoring to local needs
To broaden its appeal, Huawei has opened up HarmonyOS to other hardware manufacturers to woo them into offering it as the default OS on their devices.
Chinese manufacturers will face a tough decision in staying with Android or adopting HarmonyOS. They would have to convince their customers of the merits of the Huawei system, but on the other hand they may also be targeted by future US sanctions that prevent them from selling Android-based hardware. Also, Beijing could pressure Chinese businesses to adopt domestic software.
One way to build this attractiveness is through adaptation to and indigenisation in local markets, for instance by collaborating with local online service providers such as the African e-commerce platform Jumia, hiring local staff and developing marketing strategies specifically targeting local customer groups.
There may be limits to this if the Chinese government seeks to extend its reach by banning Harmony from carrying services, media and apps banned in China. There is a small but real chance that the potential for control inherent in any OS will persuade it to do so. This could create spillover opportunities for other Chinese companies: if a HarmonyOS phone is unable to run WhatsApp, users may migrate to Chinese WeChat.
So far, Beijing has not imposed such rules on Chinese-made handsets: Oppo phones run Google services, Facebook apps and Twitter feeds without problems -- outside China.
Internationally, HarmonyOS's future will be more heavily influenced by market dynamics than by Chinese political efforts.
This analysis was first published in the Oxford Analytica Daily Brief on June 4, 2021. To learn more about the Daily Brief and Oxford Analytica, click here.
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