Goodbye Apple, Goodbye Nokia: New Battles in the Smart Phone Space

by: Bruce Everiss

As predicted here smart phones have grown exponentially in usage so that they are now the dominant Internet device for large portions of the world’s population. Certainly their arrival has acted as the mechanism that has facilitated the uprisings in the Arab world. And of course mobile phones are the most used video gaming devices on earth by a substantial margin.

Many years ago (in 1978) I opened one of the first computer stores in the world, Microdigital in Liverpool. I sold Apple (NASDAQ:AAPL) computers and even visited the then rather small Apple facility in Cupertino, California, where I was offered the U.K. distributorship. So I have been a follower of Apple since most people didn’t even know they existed. And I saw them grow to become the dominant supplier of personal computers in the world, until Bill Gates came along and destroyed their party, relegating Apple to the role of bit player.

Apple’s weakness then was that it designed and made the computer and also designed and made the operating system. The company lived inside a patent and copyright protected walled garden. Then Microsoft (NASDAQ:MSFT) came along with an operating system (which was not as good as the Apple one) that any manufacturer could use on their computers. So suddenly Apple were competing against a lot of hardware companies, each of which was also competing against the others. And Apple lost, principally because it was vastly too expensive compared to the Microsoft based computers which had prices honed in the furnace of competition.

And now we see history repeating itself. But this time the company is being destroyed by Brin and Page. Once again Apple has created a walled garden with its iPhone and iPad devices, once again it came to dominate the market and once again competition between a lot of manufacturers using an operating system from a third party is destroying its business model. Currently the iPhone is the sixth best selling smart phone in the U.K.; the top five all use the Android operating system. But the reason they are beating Apple is not because Android is better, it is because Android phones are cheaper, honed in the furnace of competition.

Apple isn't going to die just yet. The iPad 2 and the next iPhone will sell well off pure momentum. But the writing is on the wall, and unless it radically changes the business model Apple will soon fall back to become, at best, a niche player. Exactly as it did with personal computers.

Which brings us neatly to Nokia (NYSE:NOK). Throughout the short history of the mobile phone the company has been the number one dominant supplier of handsets by giving the customer what the customer wanted. But when it came to smart phones they lost their way completely. They too went for a walled garden with two different proprietary operating systems (Symbian and Maemo). And they thought that smart phones were for “business” and not for people. So their market share collapsed.

Now they are in crisis mode and with new management in place have made one of the most stupid strategic decisions I have ever seen. Quite simply they have chosen Microsoft as a strategic partner for their smart phone operating system. Now I am not saying that there is anything wrong with Windows Phone 7, it is just that it is extremely strange for a hardware manufacturer to lock their future into that of a piece of software from another company. Nokia would be far better off being operating system agnostic. They should offer their customers a choice of operating system, then they would be back at what they used to be good at, giving the customer what the customer wants.

So I can’t see Nokia competing with the likes of HTC, which do as I suggest and back all the main horses, which means they are guaranteed to win. With the Microsoft alliance Nokia is pretty much removing its ability to compete on level terms with other hardware manufacturers. It does not look good.