The Brooding Savage

Google’s report last week that they’ve seen 50x more searches on the iPhone than any other mobile handset adds profitability  to the mobile internet.  The news will further heat the simmering battle for Mobile OS supremacy.

All told, there are six mobile operating systems vying for control of the mobile market: (in order of market share) Symbian OS, Linux, Windows Mobile, RIM BlackBerry, Palm OS, and Apple's OS X.  According to Wikipedia, U.S. smartphone (loosely described as a phone with PC-like functionality) penetration is only expected to hit 10 percent this year, but growing fast.  With the market split among so many competitors, the natural order eventually will be consolidate or condense.

But we won’t see systems leave the market for a while, for three reasons.

1. The margins for high-end phones are high, so the ability to monetize and the incentive to stay in the market are both high.  
2. The market is maturing and the overall “size of the pie” is growing, so all players will see a return on their initial investments for the next few years.  
3. The innovation cycle is still in the early stages, which means that new products can be expected that will significantly alter the playing field.  Apple’s iPhone is cool – but expect it to inspire much cooler products in the next three seasons.  
   

But by the time Smartphone penetration reaches about 25%, leaders will emerge and smaller players will exit.  Expect that to happen in about four years, according to analysts.

According to a 2007 study by inStat, Smartphone penetration will grow at 30% annual growth rate, while total handset sales remain in single digits.  (Already the global unit sales of smartphones exceeds that of laptops, according to the InStat study. Really, that’s amazing! )  That’s bad news for Nokia’s Symbian OS, which dominates the lower-end phone sector.  Their new OS for touchscreens and browsers will not have enjoyed the market leader advantage.

The smartphone segment of the handset market is forecast to increase from just over 10% of the market in 2007, to more than 25% of the market by 2012, according to IMS Research. In short, 1 of every 4 phones will use one of the new Operating Systems within 4 years.

So the final word?  We have about four years for any single OS to either sink or swim in the smartphone market.  Who will be the winners?  It’s hard to say… but if I were a betting man, these would be my picks…

Symbian… IN  This is a sure thing.  Symbian will continue to dominate the low-end market, which will provide the resources to stay in the high-end market for as long as it takes.  Also, they can expect shrinking revenues in the low-end products, which will incentivize them to push harder and deeper into the new territory.

Linux/Android… OUT  Google’s Android is still a big unknown.  But two things are for sure, they’re coming late to a crowded party; and consumers don’t care about the “openness” of the OS.  Consumers want innovative plug-n-play products, which other products will handily provide.  Learn this lesson… consumers don’t want products that need to be configured, and they won't downloaded and install added features.  Flexibility is not a mass-market selling point.  It’s a fallacy to think that consumers will jump through hoops to install the new Opera browser on their phone, when it already comes with a perfectly capable version of Safari.  Of course the interesting thing about open-source platforms is that they never completely disappear.  Expect Android to be relegated to the realm of mobile technophiles,, who are willing to take the time to download cool gadgets that never make it to mass audiences.

Windows Mobile… IN:  Microsoft sees mobile as a core strategy for their entire empire. They have virtually unlimited resources, and have a history of suffering long-term pain in order to buy/build their way into market leadership.  If nothing else, they have the cash to buy almost any of their failing competitors in this space.  Look for Windows Mobile 7 as a prelude to a far-sighted strategy for market dominance.

RIM BlackBerry… OUT, sort of:  RIM ended 2007 with around 10% share of the smartphone market. RIM’s share in the smartphone market has steadily increased in the last five quarters -- from 7.2% in 3Q 2006 to 9.5% in 3Q 2007. However, RIM’s business is still predominantly in North America and almost exclusively within B2B sector.  To be a long-term player, the company needs to capitalize on the growing consumer demand for smartphones, especially in the emerging markets of Asia Pacific and other regions.  Can they do it?  They haven’t been able to so far.  And my money is that they’ll be left in the dust compared to the slate of breathtaking products being released by the other players.  What’s left – I expect RIM to be a niche player in the professionals sector, fighting to protect it’s market position from a business-focused and well-funded MicroSoft.

Palm OS… OUT:  Palm was the OS of choice for PDA devices, which are going the way of the dinosaur.  And even in this shrinking product market, Palm is losing ground to Microsoft. From 2006-07 Palm showed –35% growth, compared with Microsoft’s +65% growth.  “With Windows Mobile device shipments up over 1.2 million units [in the same period in 2006-2007], Microsoft has achieved a dominant position in the market for data-centric devices,” according to Gartner.  Expect Palm to be the first casualty in the war, (maybe an acquisition for RIM, as they try to shore up their business market?)

Apple's OS X: IN.  Apple finds itself in an unfamiliar position.  In the PC world, they have only one real competitor.  In the Media world, they’re basically alone in the marketplace.  Now they’re facing a market with multiple software and hardware makers, all of whom are innovative, and release multiple versions of products on an annual basis.  Can Apple keep up?  Yes, based on the strength of their brand and their ability to innovate. But Apple cannot dominate in this market.  Expect Apple to continue to hold a niche place in the market, based on their unique iPhone designs that will appeal as a status symbol to their fiercely loyal audience.