Smartphones Dance Around the Enterprise Crown

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 completely understands this. Those who don’t, risk becoming another Netscape or Inktomi.

The History Of The IBM Personal Computer

While Apple introduced the Apple II ahead of the IBM PC, it was IBM’s product that ignited the era of personal computing. There were a number of unique aspects of the IBM PC that made it different from previous IBM products. In designing the IBM PC, the team at IBM elected to use off-the-shelf parts rather than the usual IBM-sourced components. In another unconventional decision, they publicly released the basic hardware specification to encourage other companies to manufacture and sell IBM compatible boards. Last of all they decided not to exclusively provide the software applications for the product, but instead to encourage third-parties to develop software for the PC and license it directly to customers. Except for a critical piece of code called BIOS, the PC truly was an open hardware architecture. Every major and minor component, enclosures, motherboards, disk, memory, bus, even the CPU would eventually be easily second-sourced.

The consequences of these IBM decisions not only spawned the PC era, but also led to the creation of a new and highly profitable PC software segment. To help complementary hardware designers and software publishers create expansion hardware and software applications, IBM published the essential BIOS code for the PC. The BIOS remained copyrighted by IBM since they intended to use it to prevent unlicensed cloning of the IBM PC. Unfortunately for IBM the BIOS was soon reverse engineered by Compaq and others using a “clean room” process that avoided legal liability for copyright infringement. This gave low-cost makers of PC clones the last technology piece they needed to deliver inexpensive PCs. The resulting explosive growth of PC clone sales and adoption ultimately changed all aspects of computing, creating a wealth of new companies like Microsoft, Intel, Compaq, Dell, and subsequently drove acceptance of the PC architecture into more demanding server applications at the enterprise level.

Within 25 years over a billion PCs were sold. Still the leading computing architecture, the second billionth PC will be shipped sometime in 2008. How could such enormous consequences arise from a few relatively modest engineering decisions? The answer seems simple. Open architectures are vastly more efficient to extend, allowing many more individuals and companies to contribute and participate in accelerating the design, application, low-cost manufacturing and distribution of a product. IBM didn’t intend to create an open platform with the IBM PC. It just didn’t foresee that the BIOS code would be reverse engineered. In an attempt to regain control, IBM created a new proprietary system bus called the MCA and licensed it for hundreds of dollars. While this approach would prevent others from cloning new IBM PCs without a license, the MCA bus was adopted by virtually no one outside of IBM. Instead, the clone makers created their own standard ISA bus which was soon followed by an even faster EISA bus.

A similarly important milestone in the history of the PC was the introduction by Intel of the Peripheral Component Interface or “PCI” standard. Intel realized they should create a standard bus and support it with low-cost Intel chips. Intel designed the PCI bus to be fast, inexpensive to build, and royalty-free.  With Intel behind it, the jockeying between IBM and the clone makers about board compatibility ended. The enormously successful PCI specification and its successors since 1992 are still the dominant local bus system within PCs and servers. Today PCI versions continue to receive wide support from all PC manufacturers globally. The PCI bus from Intel was wildly successful in simplifying integration, further driving down the PC system costs, and vastly improving PC reliability for all consumers and businesses.