A recent BBC piece makes some factually incorrect and outlandish claims about the history of the smartphone. It boggles the mind that an otherwise excellent news organization gets this so wrong. It’s the sort of thing you get when a lazy (or stupid?) journalist appears to us a bad Motorola commercial as their source.
One this has become clear: for about a year now, Android and iOS have commanded the vast majority of the mobile operating system space, at least in smartphones. Together they have made up 85% or more of the mobile space. While their overall gains on the market have slowed, they continue to pile up the installed base and more and more people have chosen them over the “also-rans” of Windows Phone, Blackberry and Bada, and the orphans Symbian, WebOS and Windows Mobile. There are many that are saying “wait, the game is still young” and that other systems will show up to give the top two competition. While obviously you should never say never, I will say that the odds of displacing either iOS, Android or both from the top of the mobile heap are so incredibly long they might as well be zero. As I pointed out in a previous post, the only way to really disrupt them is to change the game. Okay, so why don’t I believe that Blackberry 10, the upgraded Windows Phone, Tizen or the forthcoming Firefox OS will displace the incumbents?
The news for some smartphone platforms and handset makers was good for 2011. For other key players, it was bad. Basically, Android and iOS were both up. Android apparently dropped a little relative to Q3 2011, but year-over-year they have improved their position. Apple is up both year-over-year and relative to Q3 on strong sales of the iPhone 4S. The 4th quarter is a period where unit sales should be higher for everyone. For 2 key players, even the holiday shopping surge that most companies see didn’t happen. Guess who? Microsoft and RIM. Both saw decreased unit sales, not just marketshare, for the 4th quarter. Again, this happened during a key time in retail sales. Continue reading
Over on this side of the Atlantic, it can be pretty easy to ignore Nokia. They have, at best, a modest presence in the feature phone business, and are largely non-existant in the smartphone space. Outside of North America, though, it is a different story. Nokia is the biggest manufacturers of mobile phones of any kind, and Symbian used to rule the roost for smartphones, with a peak marketshare of around 65% globally. But, a big part of Nokia’s unit sales are feature phones: phones that make calls, probably have a camera and some basic texting features. Some have the ability to browse the web and such, but web traffic studies show that less than 1% of all mobile web traffic comes from feature phones. Feature phone sales have slowed some, as smartphones have gained more and more in the space. Apple, with 2 different models, is now one of the top 5 makers of handsets of any kind. Samsung and HTC, two who are in or near the top 5, continue to see increases in unit sales, a lot of those smartphones.
Nokia is in a tough spot. They are getting less revenue, and far less profit, from either feature phones or smartphones. They are working, in partnership with Microsoft, on a Windows Phone 7 device, due out later this year or early next. In the mean time, though, they continue to plummet in the smartphone market. To stem the tide of red ink, Nokia announced today that they are going to layoff 3,500 people. They are also closing or reorganizing some of their manufacturing plants as part of this step. But, you know they are in trouble when Apple’s profit from iPhones is greater than Nokia’s revenue from handsets. Symbian is the #3 smartphone operating system after iOS and Android, and is falling into the clutches of another declining product, Blackberry. Needless to say, things are looking bleak for the company from Espoo.
Nokia is expecting a lot out of the Microsoft partnership, as is Microsoft. Nokia is counting on WP7 to keep it relevant and competitive. Microsoft is counting on Nokia to give WP7 a shot in the arm. The problem for Nokia is that they’ve hitched their cart to what appears to be a falling star. Windows Phone 7 has failed to gain any kind of meaningful marketshare. They are mired back around 5-6% of the global market, which is actually below their peak of somewhere near 8% from over a year ago. Windows Phone 7 has seen quarter-over-quarter reductions in unit sales and marketshare, including declines during key selling seasons like back-to-school and the Black Friday/Christmas period in the US. All is not doom and gloom, though. The WindowsPhone Marketplace continues to see new apps arrive all the time, and they have an inventory that is measured in tens of thousands. With apps and some content, at least WP7 has some kind of ecosystem behind it. That lack of an ecosystem is what killed WebOS and is hurting Blackberry and Playbook.
The problem for Nokia and Microsoft is that WP7 just isn’t at the top of consumers minds, and trying to dislodge the iOS and Android juggernauts is a daunting task. There is a gaping hole in the WP7 story: tablets. Microsoft has insisted, vehemently, that a tablet must (absolutely, without question) run some variant of Windows, and not the mobile operating system. Their motivation for this is simple: the onslaught of tablets is eroding the presence of Windows a the low end of the personal computing space, and (with iPad) is starting to intrude into the enterprise end-user space as well. The iPad has started to impact netbook and low-end notebook sales, both of which were an easy way to get people into the Windows world. By trying to encourage Windows, vs. Windows Phone, it supposedly keeps Windows “relevant” in the personal computing space.
So, what happens to Nokia? That’s an unknown right now. Nokia’s WP7 devices could be the thing both Nokia and Microsoft need to resurrect their flagging fortunes in the smartphone market. Nokia still has tremendous brand recognition, and they have incentives to make WP7 work, given they’ve put almost all their eggs into that basket. On the other hand, either Nokia and WP7 (or both) could be the anchor that just drags them both under. It is still early, but Nokia’s offering could end up being too little too late for both Nokia and WP7. Both need some good news, particularly Nokia, but nothing much encouraging has been heard. Nokia could be the first mobile device giant to truly fall down permanently.
Nokia announced that it will discontinue the sale of Symbian-based phones in the US and Canada, and focus exclusively on the Windows Phone platform for North America. This shouldn’t come as a surprise. Symbian’s share of the smartphone market in North America was virtually nonexistent. They sold an embarrassingly small number of the devices, and never managed to gain any traction. Nokia managed to do adequately on feature phones, but they stumbled badly on smartphones. Globally, Symbian did quite well for a while, being the market leader by a wide margin. Keep in mind, though, that the global market for smartphones wasn’t exactly robust for a long time, and only started to pick up in the last 5 years or so. The hotbed for smartphones, initially, was North America, starting with the first Treo’s, followed by the rise of Windows CE/Windows Mobile, which was supplanted by Blackberry. Now, the two that dominate the smartphone market both globally and in North America are Android and iPhone, with Symbian continuing to slip globally, and Blackberry dying a slow death worldwide, and not just in its home market.
Could Nokia be a boost for Windows Phone, and get it out of its own sales slump? Yes, Windows Phone continues to ship new units on other devices, but their share hasn’t grown in any appreciable way, and is currently competing with WebOS in the “other” slice of the market share pie. Nokia has better brand recognition globally as a smartphone maker, and really isn’t as widely recognized in the US or Canada as anything but “some kind of phone manufacturer”. They seem to known for building serviceable but unexciting devices. Without some serious marketing and brand building, Windows Phone could be Nokia’s last hurrah before starting to slip under the waves.
A report from Bloomberg says that HP is in discussions to licence WebOS to another manufacturer (rumoured to be Samsung at this point). This got me thinking about Apple and RIM: should they licence their mobile platform to other hardware manufacturers? Of the major platforms (either through market share or notoriety), they are the only two that are the sole supplier of the hardware that runs their software. Neither Google nor Microsoft make any hardware at all. Nokia makes their own Symbian phone. HP is currently the only one making WebOS devices, although it appears they want to expand their reach.
The decision to licence out your base technology is not an easy one. The upside is the potential for other manufacturers to bring hardware platforms that address needs your products don’t, or to allow them to go into markets you, as a company, aren’t interested in. The downside is the potential for poorer quality products to tarnish your software’s image, or for your “partner” to simply steal your marketshare, and not add to it.
Apple tried this, briefly, with MacOS back in the 1990’s. Starting in 1995, Apple entered into an agreement with several manufacturers, with Power Computing being the most notable, to allow them to make Macintosh clones using official ROM’s supplied by Apple. This was back when MacOS was burned into ROM chips, and not installed on storage media (when the PowerPC version of the Mac was out, running System 7). The theory was that this would expand Apple’s reach into other markets, allowing the clone manufacturers to go after the low-price/low-margin end of the market, and keeping the high-price/high-margin market for Apple. It didn’t work. Instead, all that happened was Power Computing and others took market share away from Apple, and the Macintosh share of the overall PC market continued to decline. The beginning of the end of the cloning program started in mid-1997 with the release of System 8, and the limitations on licencing that prevented most clone makers to use it. Apple eventually bought Power Computing, the largest clone maker. UMAX did have a licence to ship System 8, but that ended in 1998.
However, the MS-DOS-based, and later Windows-based, PC’s were an illustration of the success of cloning. Had IBM been the sole manufacturer of PC’s, it is unlikely they would have dominated, simply because I would expect that the PC’s fortunes would have more closely followed IBM’s downward trajectory of the late 1990s. Instead, the presence of multiple Windows PC vendors meant that both retail and enterprise customers could choose systems with the price and configuration that they needed, and could have vendors compete on price and support. Being able to standardize on the technology (Intel PC’s and Windows, with the attendant productivity software) but select the hardware platform provided a competitive environment that was attractive to PC buyers.
To some degree, that is happening in the smartphone market, and will likely occur in the tablet market as well. While RIM’s missteps are well documented, they share one “problem” in common with Apple: they are the only source for their hardware. If a customer wants an Android phone, they have many different models with varying features and price-points available to them. If you want an iPhone, you get it from Apple. If you want a Blackberry, it comes from RIM. You get whatever features they decide to put into their products, and if you want something they don’t have, you don’t have an competitor running the same software as an option. This degree of choice has likely helped Android gain the marketshare that it has.
However, there is a downside: not all Android phones run the latest version of the OS, and not all of them can be upgraded (and thus can’t run all of the apps in the Android Market). Some Android phone feature different user interfaces, so switching to a newer Android phone means a new UI for the customer to learn. The phones are consistent with each other. The quality of the hardware ranges from the very good to the very poor. What we don’t know, yet, is how “sticky” these Android customers are, and if they abandon it in favour of something else. The first Androids are likely to be replaced over the next year, and it will be interesting to see if any current Android customers jump ship and choose one of the other platforms.
Could licencing in some form work for Apple or RIM? Possibly, but it would likely require pretty tight controls and oversight by those companies over the licencees. In the case of Apple, I would fully expect any licence agreement would include the need for Apple to approve the device in advance, and for the handset maker to meet some pretty stringent testing requirements to support future upgrades. I also expect it would mean giving Apple a hefty chunk of every sale, possibly enough to barely make selling the devices profitable. However, a thin profit on millions of units can sometimes be worth more than a fat profit on a few tens of thousands. It could allow Apple to go “downmarket” without putting the Apple name and logo on the device. But any missteps or quality issues are still likely to reflect badly on Apple, no matter whose name is on the hardware.
In the case of RIM, I would say they have nothing to lose. Their share of the market is declining, and I fully expect that their sales numbers will start to follow the same trajectory as Symbian. Why not try to get other handset makers involved? It probably won’t help, but I’m not sure it would hurt much.
In the end, it is a difficult question to answer. I fully expect Apple will not bother licencing iOS to outsiders, not while their sales are good and profits better. RIM probably won’t, but in their desire to survive, they make take a leap of faith and hope it helps.
UPDATE: Interesting, today I see a piece that says Android sales are flat this past month, but iPhone sales are still increasing. Granted, it is only a single data point, but right after I ask the question about the stickiness of Android sales and whether people upgrading will move to something else, we see Android sales flatten out. Right around the 18-24 month mark after the first Androids hit the mainstream market.
Brian Caulfield over on Forbes has asked the question: will Android crush iOS similar to the way the Windows PC crushed the Mac? He is looking for discussion, ideas and opinions on the topic. Here are my thoughts on the subject. As background, some of this is similar to what I discussed in a previous piece, discussing how new is the tablet market.
Part of why the smartphone market is shaping up differently is that it started out differently from the PC, and it started in a different technology environment. People like to think that the “personal” part of Personal Computer means that the PC got its success in the home for personal use, and that price was the deciding factor in favour of Windows PCs vs the Macintosh. The PC as we know it, though, didn’t just have the Mac to contend with. It got started during a time where there were dozens of other “personal” computers running a variety of operating systems. What really got the ball rolling was a combination of 3 things: IBM putting their name on the box, and the presence of Lotus 1-2-3 and Wordperfect. The PC really got its start in the corporate world, starting in the late 1980’s and into the early 1990’s, before the advent of the Internet and the widespread adoption of the PC into the home. IBM made the PC a legitimate piece of corporate computing (you couldn’t lose your job by recommending IBM back then). As people started to use the machines at work, they started to see possibilities at home. The advent of Windows and the rise of the Internet made the PC more useful than just for documents and spreadsheets, and since most people used a Windows/DOS PC at work, that’s what they bought for home. Until that point, the PC didn’t have a significant presence outside of the office, simply because there wasn’t a great answer to the consumer question “what would I do with it?”.
Smartphones, like the PC, also started as largely corporate devices, mainly because the first versions of them were basically the merger of the PDA and the phone, with e-mail added to the mix. The origins of the market go back to 2000 when the first Symbian phone showed up. From there, things diverged. In North America, we saw the rise of the Treo, which was supplanted by Windows Mobile, which gave way to Blackberry. Globally, Symbian took the lead and hung on, with the others playing catchup outside of the US and Canada. During this time, you rarely saw smartphones being used by people for personal use. In North America, people used Blackberries, which were adequate as phones, had excellent e-mail support (including enterprise integration with Blackberry Enterprise Server, something unrivalled by Palm and Windows Mobile), good security and integrated these features well. However, the data plans to support them were pretty expensive, and as web browsing tools, they were a bit clunky. There were 3rd party apps for Palm and WinMo, but few if any for Blackberry.
Both iOS and Android have enjoyed tremendous success, but unlike the PC, that success didn’t start in the corporate world. Their growth and user base is largely retail consumers, and consumers enjoy and prefer a great deal more diversity than your typical business. Corporations are driven, in part, by availability of resources and trained staff. The presence of the PC and Windows in many offices in the early days of the PC meant that you had a better chance of finding someone with that experience than other systems, including the Mac. That starts a virtuous circle: companies see that it’s easier to find Windows-trained people, so people get trained on Windows to have a better shot at jobs, which makes the potential employee pool with Windows experience larger, and so on. It was the same thing with the mainframe: yes, there were other computers around, but for mainstream work, you bought a mainframe because that’s where most of the people with training were, and where most of the software a company needed existed. Even then, the mainframe never enjoyed near-complete dominance of the computing landscape the way the Windows PC has.
So, will the smartphone market evolve the way the PC market did, with one platform almost completely dominating the landscape? I suspect that’s unlikely because it is still largely driven by consumers, and not corporations. Unlike other consumer products, the PC is an anomaly in terms of how the market developed. Consider any other product category, and name a company that dominates it to the same extent that Microsoft dominates the desktop and notebook world. The only example that comes to mind is the iPod and the MP3 player market. No one in the automotive industry, media player industry (CD, DVD, Bluray), game consoles, kitchen appliances, furniture or clothing even comes close to owning 50%+ of a mature market, let alone nearly all of it. In the car industry, the best that any car make did was GM, which owned 52% of the US car market at its peak in the late 1960’s. I wouldn’t count the tablet market just yet, simply because it is too new, and it’s too early to tell how that market is going to shape up.
The other reason, at least for the time being, is that Apple is leading the market at the moment, not in terms of sales, but in terms of direction. Apple has an outsized influence on the market and what people expect from a smartphone, and appears to be the gold standard in the minds of consumers. Android may be leading the way in sales, but it isn’t the one setting the expectations for other smartphones. Both RIM and Nokia have basically lost whatever leadership position they had in the market last year, and now Nokia has effectively abdicated what they had left to Microsoft. This influence from Apple is extending beyond retail consumers, as the iPhone is enjoying interest from corporate users in a way that Android doesn’t appear to have captured yet.
There are other factors at play, like the barriers to people switching from iOS and Android, specifically having to repurchase their apps and some of their content. It isn’t that people won’t rebuy their library of apps and such: consumers replaced other libraries of content wholesale, and multiple times (e.g. vinyl to cassette to CD to downloaded music). But they only do that when the new platform is substantially better, and the switch from iOS to Android isn’t really “better enough”. Switching between Android and iOS has similarities with home video: people happily upgraded from VHS to DVD, because the improvement in quality was significant, but the next upgrade to Bluray hasn’t gone as hoped, simply because the difference isn’t big enough for most people. The image quality of the DVD is still good enough. Back to smartphones, some will move, because of costs to upgrade, but don’t expect a lot of movement for the time being. Once the market starts to near saturation, I would expect that the share numbers will settle down as people pick their vendor and stick with them for a while.
For now, it appears that the smartphone market is going to progress and develop more like other consumer products. It appears unlikely, at least in the short and medium-term, that one platform is going to simply own the market. What will probably happen is the weaker players may get shaken out, and we’ve already seen the effective demise of Symbian with Nokia switching more-or-less to Windows Phone 7. HP will be on its own with WebOS, so I wouldn’t be betting a lot of money on that one, given that competition for app developers is hard, as RIM is beginning to find out, and the user experience simply won’t be an order of magnitude better than Android or iOS. I fully expect RIM and Blackberry will be the next to go, and my guess will be they will move to Android.
So, unless something changes radically with either Android or iOS, I expect that we’ll see both as significant players in the smartphone market as well as the tablet market for a few years.