Who Will Win the Smartphone Wars?

The new hotness, no not Twitter, but the smartphone, is gearing for an all hands on deck gadget war this year and beyond. While smartphones have been around for some time, it was only until recently (read: iPhone) that momentum has picked up faster than Usain Bolt, with two main rivals now leading the charge, Research In Motion (RIM) and Apple (AAPL).

This isn't a 2 horse race however, nor will it be over soon. As RIM executive Jim Balsillie recently said on the company's conference call in baseball terms, the smartphone wars are somewhere in the 2nd inning. What may seem like an Apple and RIM race to win, certainly can be turned upside down with entrants from all over the world. Although smartphones account for less than a third of the phone market, they command nearly 90% of the media coverage and almost all of the growth. According to Mobile Advertising Network AdMob, smartphone share increased from 26% to 33% in the past 6 months. This growth trend seems likely to continue as the popularity of these devices continues to gain and subsidies for the most popular devices rein in even the most worrisome economic consumer.

Although Nokia (NOK), may be the biggest phone maker in the world, its smartphones have yet to inspire consumer desires such as the iPhone from Apple or the Blackberry Bold from RIM. Although by sheer volume, Nokia with its range of models holds 3 of the top 5 most popular smartphones spots globally, trailing only the aforementioned iPhone. Trends are shaped by consumer decisions as well as the push from corporate entities, and as such, none of these companies are standing still, nor can they afford to.

What's on the horizon then? An analyst at Barclays is reporting that Apple has doubled iPhone production in anticipation of new models coming in June (Link). Recent iPhone speculation has pointed to not one but two phone models expected out of Cupertino this time around, conveniently coinciding with the release of Mobile OS X software version 3.0 in June. When Apple reports results for the first calendar quarter of 2009 it will surely surpass 20Million unit sales for the iPhone, not too shabby in about a year an a half.

With the AppStore becoming a global phenomenon Apple is making it extremely tough for users to ever switch away from an iPhone. If you've spent hard earned money on applications to make your phone function exactly how you want it to and have the features you want, you'll of course be less tempted to switch to something else if it means losing those precious applications. When iTunes purchases only worked on iPods for all those years, it drove an upgrade cycle for the company like nothing the music industry had ever seen.

RIM, fresh off the release of a new Curve, the well-received Bold and the mixed touchscreen Storm, has had information leak out about 3 new devices codenamed Onyx, Driftwood and Magnum. This is coming from a company that had shipped almost 8 million devices in its most recently announced quarterly results, sending shares higher by 20%. RIM is certainly hard at work, but its not an easy task convincing the general public of the virtues of a Blackberry.

Always the device of choice for the business user as smartphones have become increasingly consumer-focused, RIM had a tough balancing act to strive for. For the most part, judging by the results, RIM has done very well. Initial critical thrashing of the touchscreen Storm notwithstanding, the device has been successful and further forays into iPhone touchscreen territory by RIM will likely be greatly improved. And not a soul can say negative things about the hardware RIM uses for its keyboards, they are always top-notch.

Palm (PALM) has somehow starting erasing its name from the gravestone it was surely destined to have after several quarters of significant losses. The driving force for the resurgence? A little device by the name of the Palm Pre. Wowing audiences earlier in the year with iPhone-like admiration, the Pre is set to launch in the US soon, followed by International markets later in the year. There still is much at stake for Palm, but the feedback thus far has been incredibly positive on the new device, and with the work put into Palm's WebOS platform the company, and consumers, expect a wide range of WebOS devices going forward.

Google's (GOOG) Android has had a rather slow start but will likely pick up steam in the latter parts of the year as not only a second handset from HTC, the company that produced the G1 for T-Mobile, is due as well as multiple devices from Samsung. With carriers in the US and abroad looking at, adopting, and testing Android, it seems only a matter of time before Google's vision of hundreds of Android phones becomes a reality. T-Mobile is even talking about launching Home phones and netbooks running Android, and a recent story about HP had the company confirming it will be testing Android for its netbooks. The free, open-source platform has proved resilient despite some questionable early roots, and as the platform stabilizes and is available on more handsets and in more incarnations consumers will increasingly see Google's web based products, and ads, within their mobile world.

Like Google, Micrsoft (MSFT) has only been providing software for smartphones, however all the momentum a bloated Windows Mobile has garnered in the past has seemingly been lost in the past year. With flashier devices like iPhones, Blackberrys, Androids and Pres being on consumer minds, the battle remains uphill for Microsoft. A software overhaul is needed for Windows Mobile and it certainly doesn't help the company that it announced a visual overhaul (Version 6.5) but slated it for release at the end of this year, while a proper, better Windows Mobile 7 is scheduled to come sometime in 2010. Microsoft can't afford to wait much longer as Android gains momentum, and while the other most popular smartphones all run their own platforms.

All in all, consumers will have an abudance of choice in 2009 and beyond, and as their devices do more things they need, the world as we know it will change from the at-home/at-work Internet dominated era to the mobile/on-the-go Internet dominated era. The one constant is being connected and with each software platform making a better Internet experience each time around the debate surrounding Internet browsing is fading. The only way to get ahead in this game is to bring incredible new features (such as 3rd party applications) wrapped in elegant hardware that consumers feel inspired to purchase and use. While Apple and RIM are leading in that sense now, by the time this year's crop of devices are released we may just be nearing the bottom of the 4th.

Disclosure: Author owns AAPL, GOOG, owns long-term call options on MSFT

Comments

[Rick Urban:]

Do you know what is the Android market share versus Win Mobile?

Apr 07 09:31 AM

[Timeline St...:]

Rick Urban: If you use the Net Applications Operating System Market Share, which measures percent of web pages rendered under various OS versions, you can see a (theoretical) market share.

Obviously this requires a few assumptions. First, that Net Apps is correctly accumulating data. In my calculations, using iPhone market share to estimate iPhone sales, it has been extremely accurate.

The second assumption is that browsing is a proxy for true market share. I would argue that BlackBerry, for instance, under-represents browsing, because it's clunky to browse on BlackBerries generally, while iPhone over-represents, because it is nearly as easy as using a full computer. However, the point is probably that people should expect to be able to browse with a SMARTphone, otherwise, why exactly is it smart? So I would use this as a kind of leading indicator.

I am long AAPL and was, until recently, and in my mind, short RIMM. I am obviously glad I had no RIMM position. They really surprised me.

Here is the link to Net Apps: marketshare.hitslink.c...

Apr 07 10:14 AM

[Martinta:]

Although both Apple and RIMM have seen significant growth in smartphone sales over the past year, they still have significant ground to make-up against Nokia's dominant worldwide smartphone market share.

According to Gartner, Nokia had 44% worldwide share of smartphones sold to end-users in 2008 (down from 49% in 2007), greater than the combined share of RIM (17%), Apple (8%), HTC (4% - only branded devices), and Sharp (4%).

Apr 07 10:14 AM

[JamesApple:]

Rim is the evil Empire. Apple is the good side of the force. Apple may lose some battles to the other phone makers but ultimately Apple will win the Smartphone Wars.

Apr 07 01:58 PM

[JamesApple:]

I define a smartphone as a device built on a 4-tier architecture:
1. User (visual and voice)
2. Application (web applications)
3. Data (local RAM on the phone, hard disk like the iPod Classic)
4. Collaboration (external systems / data services, or other device through protocols. For example, SOAP, Bluetooth, etc.)

Apple hits on all 4 tiers with top marks.
User - needs no saying.....tops.
Data - iPod Classic had a 160 Gig hard disk that worked flawlessly for a long time. Bluetooth is flawless.
Application- iTune has been the dominant and still rapidly growing world standard for all kinds of applications, including web applications.
Collaboration - iTune and upcoming iTune successors provide state-of-the-art platform providing all the protocols and platforms, Apple used to write Microsoft Office for the Mac.

There are apparantly no competition. Apple iPhone is less than 2 years old, and iPhone is dictating this Smartphone standard.

Apr 07 02:24 PM

[Frank Castle:]

Apple's only standard is their own standard. It serves Apple.

Overall great article speaking to the strengths of each vendor. Until Apple is able to sell their device on every stateside carrier and offer consumers choice (different versions of the same iPhone is not what I meant) I cannot see them "winning". Apple will command and have a large share of the marker but this market has many sectors compared to selling iPods.

RIM is hitting on all 4 sectors just fine and will continue to sell and introduce devices across all their carrier partners.

Apr 07 08:15 PM

[Old Hand:]

Apple, dude.

Software beats hardware any day of the week. It always has. Apple also has dramatically deeper technology in hardware.

Apr 08 08:49 AM

[Jon T:]

Thyings are not as rosy at RIM as people are suggesting. I would be short.

The latest quarters stellar results are partly the result of operators (Verizon was it) offering 2 Blackberrys for the price of 1. These offers won't go on forever.

The Storm was not well received, and they are like Microsoft, trying to soften the damage by talking up the next model due in September, under a year from the first one.

Their App Store is fine and good (but PayPal? Please..) though there are so many models it is impossible for them to make it as simple and straightforward and easy for customers as Apple achieves with the iPhone and App Store.

Competitors are competing with soon to be old iPhone products and I predict Apple will storm ahead in this race.

Apr 08 09:25 AM

[tommylee:]

I agree with "veteran of the biz". software beat hardware any day of the week. But Steve Jobs was absolutely correct when he quoted Alan Kay (en.wikipedia.org/wiki/...) who said some 30 years ago at the introduction of the iPhone:

"People who are really serious about software should make their own hardware".

Another Kay quote exemplifies what makes Apple stand out above the "smartphone" crowd:

"The best way to predict the future is to invent it."

My prediction that will blow all other competitors out of the market:
"OSX snowleopard introducing: "On the fly language translation into 20 some languages". I may start out as a bit crude but eventually will set the new standards in smartphone technology...

Apr 08 10:35 AM

[brewer:]

Windows Mobile and RIM are basically 90's technology compared to the iPhone. Palm is simply a rip off, with a dumb keyboard for those who think they somehow can't type on screen. They only reason they have Pre is that they hired away Jon Rubenstein from Apple. (Guess that once the megahertz myth was a moot point--intel move, he had nothing left to explain at Apple.)

I find the predictive correction on the iPhone/iPod keyboard to be so good that it's faster than using a fixed keyboard. And it's great that it can change to add whatever key you want, and even hold a key to get any diacritical. Try that on any other keyboard!

Apple is leading tech to an even greater extent now, but this has been their role since 1979.

Apr 08 10:50 AM

[Aryana:]

The iPhone is a great phone and will be for a long time to come, however what I saw at the CES gave me grave concern. This Palm Pre is just incredible, Apple will have its hands full trying to keep up with the Pre. I don't think anyone will be able to do that in the short term. The is a game for Palm to lose. Kudos to Palm. I can't wait to replace my iPhone, something I never thought I would say.

Apr 08 10:53 AM

[.crazylegs..:]

and of course only software matters and not air interface/data transmission technologies. while apple can write some serious code they don't understand yet the scarcities involved in mobile. their devices end up using so much bandwidth that carriers need to upgrade and upgrade. look at att's capex plans ahead of iphone launch in june. meanwhile rim approaches everything from an efficiency standpoint and compresses data that moves over the network. this gives them an advantage when it comes to carrier incentives. regardless of the nonsense written here, the macro picture means there will be plenty of business for multiple smartphone vendors for the next few years so it is quite possible both rim and apple can coexist and prosper simultaneously. (ps. don't tell that to any of the apple fans here, they won't believe it)

and remember the best technology does not always equal the most mkt share. many factors affect ultimate end sales.

Apr 08 10:56 AM

[.crazylegs..:]

Back it again again brewdog! i thought you would be quiet after your rim "creative" accounting blunder where you ignorantly wondered out loud how rim's margins could be decent when vz is offering bogo, not realizing vz is subsidizing the phone, and not rim.

in re the keyboard, funny that the iphone does that because rim's phones do that as well, and have for some time. again, ignorant of facts. please stop posting, i'm getting tired of pointing out your mistakes. it's fine to love your iphone, i love mine (but prefer to use the bb day to day), but at least try to be a little balanced in your approach.

besides, if apple has been leading tech since '79, the why for almost 30 years such low mkt share? just a question.


On Apr 08 10:50 AM brewer wrote:

> Windows Mobile and RIM are basically 90's technology compared to
> the iPhone. Palm is simply a rip off, with a dumb keyboard for
> those who think they somehow can't type on screen. They only reason
> they have Pre is that they hired away Jon Rubenstein from Apple.
> (Guess that once the megahertz myth was a moot point--intel move,
> he had nothing left to explain at Apple.)
>
> I find the predictive correction on the iPhone/iPod keyboard to be
> so good that it's faster than using a fixed keyboard. And it's
> great that it can change to add whatever key you want, and even hold
> a key to get any diacritical. Try that on any other keyboard!<br/>
>
> Apple is leading tech to an even greater extent now, but this has
> been their role since 1979.

Apr 08 11:05 AM

[mollytjm:]

about the 'pre'.. do you really think Apple won't innovate past it very quickly? it's what they're good at. everyone else takes forever to improve or come out with something new. in tech, the prize goes to the swift.

Apr 08 12:41 PM