Smartphones War Part II: Smartphone OS the differentiating factor

In the previous post we discussed the growth of mobile phone industry and the contribution of smartphones to it.  We conducted a simple industry analysis understanding the externalities that affects the smartphone market and the players involved. We also identified that the smartphone OS is the primary differentiating factor in satisfying the priorities and needs of  the  users which integrates with their mobile phones .

Customer Lock in or Open strategy

Lock-in refers to the practice of companies locking in its users by the way of getting them accustomed completely to the hardware or software in its product. Apple has achieved a degree of lock-in with its iPhone and App Store; its customers can use only those applications available from Apple’s online market. If the new Palm Pre includes a must-have application, iPhone users who want it would have to switch devices and even their wireless phone service providers from Apple’s only U.S. provider, AT&T, to Palm’s partner, Sprint. This would call in for higher switching costs which compels a user to some extent of lock-in. Whereas Nokia’s Symbian, Google’s Android, Windows Mobile  have adopted a more open strategy in which they develop an operating system that can be used in phones from a variety of manufacturers, gaining market share by being installed in multiple brands of smartphones.

From strategic point of view, Apple’s primary objective is to sell devices powered by MAC OSX and well supported by its huge iTunes App Store, while Google’s is to build an audience for paid search. The game for Nokia, RIM and Microsoft is more delicate. On the one hand, they need app stores in order to remain competitive with Apple. But they must also balance the extent to which their app stores develop outside of operator involvement with their existing deep operator relationships.

With this information and understanding, let us look at the strengths and weaknesses of the various smartphone OS platforms.

Symbian and Blackberry are perfectly positioned for a strong growth in 2010 with a diverse product portfolio and MAC OSx with its  largest uniform app-buying store( 3billion+ downloads) in the world will continue offering a total user experience to the 3G users. Google Android will be the dark horse in this race and projected to achieve double digit market share by end of 2012. It’s going to be difficult for the likes of  Palm and Microsoft Windows mobile to even maintain their market share unless some major steps are taken on the design and the OEM partnership aspects.

Meanwhile, with the latest updates from Microsoft, Windows Mobile 7 may come in two different flavors: a business version and a media version. The mobile OS may come with a variety of different features including an impressive mobile version of Office, online collaboration, high-definition video, Xbox Live, and streaming TV. With Symbian opening its platform will gain a substantial advantage and huge support from its ever growing worldwide developer community. Palm with its intuitive webOS has to drive its Palm-Pre success across all its devices in its portfolio.

3G Growth and Penetration

According to the report released by Morgan Stanley (2009), there are currently 485 mn with 11% penetration for 3G users globally and growing at nearly 46% YOY and projected penetration rate is 44% by 2013. Japan, South Korea, Australia, W.Europe and USA leads in terms of number of 3G subscribers and penetration and are the top markets for smartphones which will be supported by a stronger 3G infrastructure.

Mobile Web and Apps Usage Share

In the area of total mobile web pages views and the whole range of apps usage, the battle is already won by Apple, giving the competitors run for their money and to users a richer web and user experience. Mac OSX has succeeded attacking the top of the pyramid to strengthen its portfolio of product(only one device) with a stronger services (app store) business model.

Continuing the focus on the importance of having a huge application store to support the success of smartphone platform, let’s understand what type of applications and mobile web content is being consumed by users. Below shows the different categories of apps downloaded from Apple iTunes store in 2009.

Considering the past and current trends: games, entertainment, social networking, navigation (LBS) and education will be the top categories for apps and content consumption in 2010-2011.

Advertising has also started playing a more important role, apart from the information services players like Google whose primary business model is based on ad revenue. There is an exciting battle going on between Nokia Symbian’s Ovi Store and Google Android’s Maps Navigation in providing free turn by turn navigation on their devices, changing the game completely for the upcoming location based services applications and focusing on the huge potential of advertising revenue associated with it. It’s also a huge leap from the user perspective, enabling access to the powerful and accurate turn by turn navigation directly from its smartphone even without a data connection.

Comparison of App Stores

Final thoughts..

Thus, the smartphone operating system and the supporting apps-software will be the key differentiator for the success of any smartphone. Mobile Web is going to be the next big factor apart from apps in providing a uniform, seamless and richer user experience. The stronger the mobile web and web browsing experience, more easily the interoperability conundrum between devices and the apps will be resolved which may in turn dilute the apps store business model. This may also lead to lesser differentiated and a consolidated smartphone market but until then it will be exciting to see which OS outsmarts the other. Enjoy the battle !!

- Neil Shah