These are still the early days of the smartphone. The innovation in smartphone products and services is similar to the rise of the personal computer and the web browser. In the early PC business, uncertainty was everywhere. Buyers were concerned about software applications, usability and maintenance. Price and performance were points of constant contention between manufacturers. Developers eagerly chased the most popular platforms.
The browser growth period was a compressed and magnified version of the PC period. The browser spawned an investment bubble and an antitrust battle of the century. Like the PC period, entepreuners and investors watched closely for waves they could ride to profitability. Publishers covered the whole heated debate. Yahoo rose and Netscape disappeared. Google rose and Inktomi disappeared. These and many more, succeeded or failed due largely to differences in management and strategy, but the opportunity was there for everyone.
In both the case of PC and the the browser, it took a number of years for patterns to appear. Today, in the smartphone business, we are seeing some trends and patterns, like Apple’s success in the consumer market and the continuing success of Rim in the enterprise space.
iTunes for Windows in the Enterprise
For consumers and publishers, the iPhone and its popular iTunes store make a lot of sense. Because Apple knows every publisher, there are no issues for consumers about software security, malware and viruses that plague software downloaded from the wild wild web. As Piper Jaffray analyst Gene Munster explains, “Apple’s dominance in the [consumer electronics] and online music markets is going seemingly unchecked.” Publishers benefit too. For one, consumers cannot resell downloaded software from the iTunes store under the first-sale doctrine. There is no piracy. There is no gray market. iTunes controls exactly who gets what from the software publisher. Apple even provides mechanisms to allow ongoing subscriptions, and this is going to pull in the content publishers. Rupert Murdoch, Chairman of News Corp announced last month a plan to charge iPhone and BlackBerry users a weekly rate of $1 for subscribers and $2 for non-subscribers to access its mobile site. Other publishers have already started. For them, the iTunes and Blackberry stores offer certain advantages, but will have to compete with free content on the Internet.
iTunes for Windows is about as far as Apple can get with enterprise IT departments, and even that’s probably not welcome. No business would choose to funnel its business applications through an application store like iTunes. For the enterprise, the iTunes store is mostly friction and overhead. Apple slowly responds to enterprise requirements, such as remote wipe, and the Apple documentation for enterprise features are superficial and under-supported. The Apple business of smartphone products and services for consumers can succeed without the rigor and options that businesses demand. Consumers may be perpetually happy to download applications through an iTunes store. For businesses, the logistics and complexity of the iTunes store are a nuisance. As a result, we see the repeated pattern of Apple succeeding in the consumer market but not the business market.
ATT vs Verizon
The largest two carriers, ATT and Verizon are both important factors in the consumer market. ATT has not announced an application store. The iPhone exclusively uses the iTunes store. But Verizon wants some of that action. Verizon has 87 million subscribers it needs to keep happy or lose to vendors offering better smartphones. To control content iTunes style, Verizon appears to be ready to require smartphone vendors to sell their application exclusively through an online Verizon application store. Lowell McAdam, president and CEO of Verizon Wireless, made a deal recently with Google to offer smartphones pre-loaded with innovative applications on Android-based devices from several manufacturers. The advantages to developers are parallel to the iTunes store, since Verizon simplifies billing through its existing customer relationship.
To maintain control like Apple, Verizon may preclude customers from getting their applications from Blackberry App World or the Android Marketplace. According to reports from GigaOM, Verizon is reportedly demanding Verizon handsets include default access to only Verizon’s app store. This includes the popular Blackberry Storm smartphones.
But the bigger issue for carriers is bandwidth. AT&T’s chief technology officer, John Donovan, recently stated that smartphones and associated applications have produced a 5,000 percent increase in data usage over three years. That’s not going to let up. AT&T now requires that every smartphone subscriber have a data plan.
Handsets or Operating System
Motorola has received recent Federal lab approval of a smartphone planned for sale by Verizon for the holiday season. ATT may start working with Dell on offering an Android-based phone for the eventual day when ATT’s exclusive iPhone deal runs out. Apple’s introduction of the $99 iPhone 3G is generating significant market share gains in the last six months, for a “leading position in music and mobile markets,” according to Munster. Yet hardware is rapidly becoming a commodity, eventually to be dominated by Asian manufacturers, just like the VCR. The future of the smartphone will be dictated by software and content, not hardware. The obvious conclusion? Instead of competing on hardware, profitability in the smartphone business will be driven by software capabilities. Right now the strategic key to the smartphone software opportunity is the operating system, and with respect to the operating system, the enterprise market for smartphones is wide open for competition.
The question is therefore, who will prevail as the smartphone vendor of choice to businesses. Rim has a history of being the leader. But if we examine the state of mobile operating systems, we see another pattern. The early generations of mobile operating systems, like Symbian and Windows Mobile are quickly losing ground to Android. This trend will accelerate. The Blackberry operating system may be the next victim of Android. Dell and Motorola have set a clear path on the Android platform. Dell spokesman Andrew Bowins recently told Reuters: “We are deeply engaged with our operator partners around the world to deliver mobile broadband enabled computing devices.” But manufacturers like Dell and Motorola, and even Rim will lose ground to the superior strategies of Google and Apple, companies focusing on operating system software and application developers, where most of the value is added. Apple produces great hardware, but at the core of its strategy is a plan that leverages software and content from the developer community. Many companies can deliver the hardware. Few can deliver the software and developer enthusiasm. Google is one of the companies that understands this well. Those who don’t, risk becoming another Netscape or Inktomi.
Photo Credit: M. Yoshihito