Is your smartphone smarter than mine?

Citation

Curwen, P. (2010), "Is your smartphone smarter than mine?", info, Vol. 12 No. 2. https://doi.org/10.1108/info.2010.27212bab.001

Is your smartphone smarter than mine?

Article Type: Rearview From: info, Volume 12, Issue 2

A regular column on the information industries

It is confidently predicted that smartphones – a sub-set of the overall handset market although by the standards of even a few years ago a basic handset is astonishingly smart – will significantly increase their share of the overall device market. However, a sub-set of the smartphone market is expected to grow even more rapidly. This sub-set contains touch-screen smartphones and its existence owes much to the launch of the Apple iPhone which has now evolved into its third variant in the form of the 3G S (or 3GS where “S” stands for “speed”). The key point about the iPhone is that it uses a proprietary operating system (OS) and that applications (apps) have to be downloaded from the iTunes store, which is controlled by Apple.

So here we have the three key elements in the struggle for supremacy in the smartphone field:

1. 1.

   OS;

2. 2.

   device; and

3. 3.

   apps.

It is also useful to point out that the network operator plays a reasonably important role because it must choose which combination of device and OS to support and can apply its own idiosyncratic name to a device. So who are going to be the winners?

OS and devices

To a considerable extent a device is distinguished by its OS, and hence both need to be considered in tandem. It is generally agreed that the iPhone 3G S is not significantly different from the 3G – basically it is faster and has more memory and an improved camera capable of handling video. Whereas the iPhone 3G was ahead of the game, the 3G S presented an opportunity for vendors to introduce touch-screen smartphones with genuinely competing attributes.

It is important to bear in mind, however, that the non-touch-screen smartphone market is currently dominated by Nokia and its Symbian OS – Apple is not present. Symbian will probably cede some ground because it is not favoured for touch-screens, but Symbian will remain a significant player among operating systems. The other major player that has until recently concentrated exclusively on non-touch-screen devices is Research in Motion (RIM). RIM has long had a lock on the enterprise market with its range of BlackBerry devices, each sporting a full Qwerty keyboard to ease business applications such as sending e-mails. However, it has begun to struggle because competing touch-screen devices have introduced “virtual keyboards”, a trend which RIM has in part been forced to emulate.

In the touch-screen sector consider, firstly, the Google-inspired OS known as Android, which is open-source – that is, any vendor can use Android as an OS for its devices. The original Android-based handset, the G1, was no match for the iPhone, but the G2 handset, with a 1.5 software upgrade (known as the Donut) was launched in mid-2009. It did not have a physical keyboard, unlike the G1, but retained the trackball and was HSDPA-enabled. A variant of the G2, branded as myTouch, was first launched in the USA by T-Mobile in July 2009. The HTC Hero was next to market. More recently there has been a further upgrade, the version 2.0 OS (known as the Éclair). Somewhat surprisingly, it was Motorola that launched the first handset based on Android 2.0, branded as the Droid in the USA and the Milestone in Europe. A follow up to the social network oriented Cliq/Dext, and marketed by Verizon Wireless in November 2009, the Droid – the slimmest-ever handset with a Qwerty keyboard – specialised in location services, arguably the most trendy application for smartphones at that time. Twice as fast as the original Android handsets, the Droid appears to present a real challenge to the iPhone, especially given its launch over the superior Verizon network in the USA.

The Palm Pre (and its successor, the Pixi) uses an open-source Linux-based OS called the WebOS which is claimed to be superior to that of the iPhone. For its part, Microsoft provides the Windows Mobile (WinMo) OS for smartphones, but Microsoft, unlike Apple, cannot get away with a proprietary platform and is unwilling to opt for open-source, so it has struck an uneasy compromise by charging fees. As a result HTC, for one, has recently switched in a big way from Windows Mobile to Android, and SonyEricsson, which had previously ignored Android 1.5, has announced that it will be bringing out the Xperia X3 (Rachael) based on Android 2.0 in 2010Q1. Nevertheless, Google has its own problems with Android in that Android is marketed by vendors rather than Google itself, in spite of Google’s strong brand image.

Applications

The other crucial battle is being fought over the range of apps being made available on different platforms. The iPhone Mac OS 3.0 beta release in March 2009 included an updated software developers’ kit with more than 1,000 new application programming interfaces, and by the end of April some 35,000 apps were available and had been downloaded one billion times in total. By end-September, 85,000 applications were available and more than two billon downloads had been racked up. Both Google, with the Android handsets, and Palm with the Pre, were only too well aware that they needed to provide sufficient attractive apps to prevent the iPhone winning the war hands-down. One interesting side-effect was that network operators such as AT&T were obliged to upgrade download speeds to 7.2 Mbps via HSDPA in order to cope with the tidal flow of apps.

A particular feature of the Palm Pre and Pixi is the ability to keep multiple apps open at the same time. However, the range of apps available via the App Catalog (numbering only a few hundred) cannot compete with Apple – which is arguably why only Sprint Nextel has so far backed the WebOS – and as yet the Google Android Market (which appeared as version 1.6 in September 2009 and claimed to contain more than 10,000 apps in October) and RIM’s BlackBerry App World have made little impression. The strategy for Microsoft was to launch its own apps store in 2009 with an initial portfolio of 20,000 apps. Windows Marketplace for Mobile (aka Skymarket) was scheduled to accompany the launch of WinMo 6.5, but the latter’s appearance in October was generally seen as an attempt to hold the fort until an improved version, WinMo 7.0, with comparable features to the iPhone, could be marketed in 2010.

Interestingly, the issue as to whether applications are the primary responsibility of hardware provider, OS provider or network provider or any combination thereof remains in the balance. Nokia evidently believes that it can leverage its leading share of the smartphone market by launching its Ovi Store which even AT&T in the USA is happy to make available to its Nokia-owning subscribers despite having its own Media Mall. The Ovi store launched with 1,000 apps and is currently adding more than 100 each day.

Analysis

Apple benefits from a symbiotic relationship between hardware and software that no other company can match. The applications do not generate huge revenues, but they make a big difference to total sales of handsets. With its established enterprise customer base, RIM enjoys similar hardware/software benefits but it is struggling badly on the touch-screen front and recent financial results have been poor. During 2008, these two companies sold only three per cent of all the word’s handsets, but they made 35 per cent of the aggregate operating profits. Apple continues to benefit from large subsidies provided by operators that are tying customers to relatively long contracts. For everyone else, the struggle is to acquire or retain the economies of scale that are the alternative route to riches. This is where Nokia has the advantage while other vendors struggle to stay afloat. Nevertheless, it is suffering in the short term.

For operators, being linked to a successful smartphone also has considerable advantages in principle, both in terms of attracting churning customers and enabling the extension of contract times. It was possible initially to sign up for operator exclusivity with the iPhone, and exclusivity in relation to this and other touch-screen smartphones continues to be possible although it no longer appears to be the preferred model. Exclusivity is a two-edged sword since the current price per handset paid, for example, by AT&T to Apple only makes sense if it results in defections from competing networks and keeps new customers loyal. Its benefits are also much reduced when the great majority of those likely to want an iPhone have already bought one.

A combination of first-mover advantage in an expanding high-end market combined with tight hardware and software integration underpins Apple’s success in breaking into a new market in the face of entrenched and extensive competition. However, competitors cannot simply emulate the Apple model although most are for now doing more or less that. In the medium term, Google for one purports to believe that the application store model will be overtaken by a browser-based model, but then, perhaps, it would and there is evidence that it does not really believe its own claim. Meanwhile Vodafone has abandoned its proprietary Live! Portal to form the Joint Innovation Lab initiative with China Mobile, Verizon Wireless and Softbank in the hope that this will create a distinctive user experience with huge potential for developers. This is based upon a version of open-source Linux known as LiMo that looked to have been consigned to history by its direct competitor Android until Vodafone stepped in, but with Motorola concentrating on Android, Samsung is left as the only significant vendor of LiMo-based devices.

The iPhone is no longer the “must have” handset that it was in 2007-2008, at least in its existing markets, and now that evidence is leaking out that operators have not necessarily done all that well financially from their initial contracts with Apple, there is likely to be a concerted effort to market rival handsets. Which leads on to what is probably the core issue for 2010 and beyond, namely open-source or not? The first point to make is that, at least in the USA, the two most financially successful smartphone vendors are Apple and RIM. Their success is largely ascribed to their tight control over their operations – viewed by some as a form of dictatorship, but defended by the operators as benign. Yet they rely upon outside developers for most of their applications, even if they ultimately decide whether they are officially sanctioned, so their systems are not altogether closed. Furthermore, the internet itself would have developed much more slowly had it not been open to anyone to put forward innovations.

Elsewhere, open-source is very much in favour. Hence, Apple and RIM have probably reached the high point of their influence, and while they will remain substantive players in the ever-growing smartphone market, the more open the platform the more influential it will become in the medium term. However, one thing is certain, namely that the proliferation of platforms and applications is a classic illustration of excess competition. Sooner or later, the number of winners must shrink to match the available economies of scale. If so, it is highly probable that the winners on this occasion will indeed win on merit.

The gatekeeper controversy

It is also worth commenting briefly on an as yet unresolved issue which came to the fore when, in July 2009, Google accused Apple of rejecting its Google Voice for iPhone app. Apple replied that in fact it was still considering the matter, and that it had delayed approval because the app appeared to “alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface”. The spat induced the FCC to investigate the application approval practices of app stores – in other words, were they performing a gatekeeper function? Apple believes that it is entitled to deny approval to apps that are incompatible with its OS, but rival Android has no approval system and has easily been able to retrospectively deny access to the less than one in 100 apps that have caused problems.

Peter CurwenVisiting Professor of Telecommunications at the University of Strathclyde, Glasgow, UK