Apple and Android rule the roost
The mobile device operating system market is currently dominated by Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iOS. Android currently holds a ~70% market share of the smartphone market and over 40% of the tablet market. iOS on the other hand holds a ~21% market share of the smartphone market and ~50% of the tablet market. The other players in the market such as BlackBerry (NASDAQ:BBRY) and Microsoft (NASDAQ:MSFT) are too small to count as major players (see table below). Though BB10 and Windows 8 are expected to gain market share, nobody expects them to come even close to the market leaders. The recent sharp fall in Apple's stock price has made me change my stance towards Apple. The valuation seems compelling and the market is not factoring in possible catalysts like the new iPhone 5S, smaller and cheaper iPhone, iWatch and iTV. Google on the other hand is reporting impressive growth numbers due to its near total dominance in the Internet Search market. While I am positive about the Google stock in the long term, I am a bit concerned about the stock in the short term.
Mozilla could disrupt the mobile apple cart
I had discussed how Android is coming under multiple attacks from different sources and it is only a matter of time before it cedes market share to other operating systems. iOS is also set to lose its No.1 position in the tablet OS market to Android according to IDC. However, one operating system that nobody is currently factoring in their calculations is Mozilla's new Firefox operating system for mobile devices. This OS has the potential to completely change the mobile OS pecking order. Telecom carriers, mobile device makers and app developers have a big interest in breaking the Android-iOS duopoly in the mobile OS market. Firefox OS provides a credible alternative to both ecosystems. Mozilla has already managed to find some big heavyweight backers such as Qualcomm (NASDAQ:QCOM), Deutsche Telekom (OTCQX:DTEGY) etc. If Mozilla's new phones are successful, then more players will join the Firefox bandwagon, putting pressure on the current leaders.
Top Five Smartphone Operating Systems, Shipments, and Market Share, 4Q12 (Units in Millions)
4Q12 Unit Shipments
4Q12 Market Share
4Q11 Unit Shipments
4Q11 Market Share
Year over Year Change
Windows Phone/ Windows Mobile
Mozilla set to launch Firefox OS for mobile phones
Mozilla announced the launch of Firefox OS for mobile phones during the Barcelona Mobile World Congress. The company has signed deals with a number of Asian mobile phone companies such as LG, TCL, ZTE and Huawei to launch cheap smartphones using the new OS. Mozilla has also managed to rope in telecom carriers to promote its mobile phones. According to Mozilla, 18 phone networks are backing the venture.
Firefox OS advantages over existing mobile OS
1) Use of open standards - Firefox OS will use open standards such as HTML 5 for its operating system which will not have proprietary extensions. This will make it easier for developers to code for the new OS.
Firefox OS smartphones are the first built entirely to open Web standards, enabling every feature to be developed as an HTML5 application. Web apps access every underlying capability of the device, bypassing the typical hindrances of HTML5 on mobile to deliver substantial performance. The platform's flexibility allows carriers to easily tailor the interface and develop localized services that match the unique needs of their customer base.
2) Support from telecom carriers - Major telecom carriers are supporting the Mozilla effort because it is in their interest to reduce the vice-like grip of Apple and Google over the mobile ecosystem. American Movil, Deutche Telekom and Telenor plan to launch Firefox OS based phones in 2013.
3) Support from Qualcomm and handset companies - Firefox OS has roped in a number of major mobile hardware companies like Qualcomm, TCL, ZTE and others to support its new OS. Hardware support is quite crucial for Firefox OS to succeed and the company has managed to attract strong partners.
4) Wider acceptance from the coding community - One of the main selling points for the new OS is that it allows more developers to develop applications. The reason is that there are few developers who are familiar with the Android and iOS APIs, while HTML 5 is well understood by millions of developers.
Firefox browser is one of the most successful open source products
The Firefox browser is the 2nd most popular web browser globally with a ~20% market share. Firefox was the first browser to give MSFT's ubiquitous Internet Explorer serious competition after Netscape was decimated by MSFT. Firefox managed to win a cult following, thanks to innovative features that Mozilla introduced for the first time. The ability to open multiple tabs in a single window, use of extensions etc. put Firefox far ahead of IE. Microsoft made major upgrades to IE after Google's Chrome O/S started to gain serious market share.
How Mozilla could hurt Apple
Mozilla is trying to break the "walled garden" approach of the mobile ecosystems through its new OS. iOS is the biggest "walled garden" and therefore the main target of Firefox OS. The Mozilla foundation is a non-profit organization which means that it would be more acceptable to hardware vendors than Android or iOS. Apple does not license iOS to outside vendors and uses it exclusively for its own iPhone, iPad and Mac products. However, that may not hold true in the future when software becomes the key differentiator amongst mobile devices. Apple might find it more profitable to sell the OS and its associated software. BlackBerry management has been talking about getting out of the hardware business and into licensing of software. While Apple currently makes massive profits by selling its hardware products, it may not hold true in the future. If the new Firefox OS catches on, then Apple will face a big unexpected threat.
How Mozilla could hurt Google
Android is installed in smartphones sold by hundreds of vendors. These vendors have to follow the Google diktat with regard to version changes and compatibility. They also have to integrate Google services which they may not want to. Google is also not finding Android to be a big money spinner, despite its dominance in the mobile devices market. The reason for the success of Android is also the reason why Google is not making any money. The Android OS is based on Linux and is sold under an open source license. This means that Android is free and anybody can modify the OS to suit his own needs. Amazon (NASDAQ:AMZN) has completely hijacked the Android OS to add its own ecosystem on top. It has replaced Google's app store with its own store and Google has been able to do nothing about it. Mozilla will be more attractive to the third party vendors because their dependence on Google will be reduced further. Major mobile companies such as Lenovo, Samsung and Acer could completely switch over as they don't like to be dependent on Google. Samsung could make the new Firefox OS an instant success by embracing it. Samsung is the world's biggest smartphone seller and is currently experimenting with an in-house OS called Tizen. Firefox will allow Samsung to escape the clutches of western OS companies once and for all.
Mozilla is based on the same Linux OS roots as Android and is more developer friendly than Android. The biggest advantage of Firefox is that it will not be under the influence or control of any commercial enterprise. Recently, Alibaba was not able to launch an Android derived OS due to pressure put by Google on Acer. However, companies like Alibaba, Amazon and Facebook (which are coming out with their own smartphones) will have a huge incentive to switch to Mozilla. App developers will also find it easier to code for Firefox OS as it is built using open standards. The learning curve for HTML 5 is non-existent for most web developers.
The market is not currently giving too much attention to the new Firefox OS. Big companies and countries want to escape the clutches of Google and Apple. Firefox OS gives them the perfect opportunity to do so. China is already promoting a version of Ubuntu Linux to reduce Android influence. Mozilla has a long history of successful development using open standards. I feel that Google will be hurt much more by Firefox OS than Apple. The reason is that Firefox OS is targeting the low to mid-end of the smartphone market which is dominated by Google. Also Apple buyers will not be converted to Firefox OS easily, given the tight integration of hardware and software in Apple products. The switching costs from Android are much lower in my opinion. The Linux root of both Android and Firefox OS also poses a bigger threat to Android. I think that Google stock may come under pressure from Firefox OS, however, Apple should remain relatively insulated.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.