Microsoft risks losing its grip in smartphone revolution


What matters is that there’s a fight in the industry, and a new phase of clever development

THE MORE I watch it, the more I think the future of mobile phones is going to echo the ecology of the early PC world. In this rematch, the old slow-moving giant IBM will be played by Nokia. Agile, innovative Apple will be played, once again, by Apple. But the real $64 billion question is – who plays Microsoft? I’m betting Google, but I could be wrong. I am sure of one thing: if the old Microsoft doesn’t pull its finger out, it won’t have any starring role at all.

Last week Gartner published figures that indicate Microsoft’s parlous position. This time last year, it had 11 per cent of the global smartphone market. A year on, its share has dropped to 7.9 per cent. The iPhone had jumped from 12.9 per cent to 17.1 per cent; RIM (the Blackberry makers) was 20.8 per cent, while Nokia’s Symbian platform had dropped from 49.7 per cent to 44.6 per cent.

Smartphones are by no means ubiquitous but as the march of technology grinds on, the mass market is slowly moving to match elements of the smartphone market. The mainstream mobile phone in five years’ time will look a lot more like a modern smartphone than it will a Nokia handset of 2004 vintage. And as that wave of innovation begins to spread out to the larger mobile market, it looks like Apple will be the one seizing the market, Nokia the one handing it over. And Microsoft looks to be stumbling at the gate.

RIM and Google seem evenly matched to seize the rest of the ground. I think RIM’s time has been and gone, however. Google’s new mobile operating system, Android, has less than 4 per cent of the market currently, but it’s growing fast.

Since Android is open source, almost any handset manufacturer will be tempted to adopt it. RIM can only be one player in this broader match. And single players, when faced with an openly shared competitor, need to be far more brilliant than RIM has been.

That’s why I think what we’ll see is a playing out of the old PC market of the 1980s and 1990s. The battle will quickly settle between those who want control and market share (RIM and Apple), and those willing to have less direct control in return for a larger share (Google). Back in the 1980s, the controlling party was Apple. They held their share by producing better products, which they funded with higher prices, and created with the help of co-founder Steve Jobs and an extremely skilled workforce. Microsoft came to dominate because it was much less interested in the total control required to produce superlative products, and happier to partner with others to secure market share, which matches Google’s policy now.

Unfortunately for Microsoft, in the face of a competitor who is literally giving away the code to its operating system, the same trick can’t be played again. There’s no advantage to Microsoft in giving away Windows Mobile, while Google is gambling that funding Android will drive internet growth and keep the mobile phone market open enough for Google’s advertising revenue to continue to flow.

Nokia, to me at least, feels like IBM. The company has fiddled and dabbled with its Linux platform, the N-series, and let its dominant smartphone platform Symbian rot on the vine. Its rule of the low-end phone market will mean that sales will dwarf those of the smartphones makers, until some tipping point means it will suddenly, like IBM, be perceived as the contender rather than the king of mobile telephony.

RIM seems caught in the worst of positions against all contenders. It won’t license its core technology, it isn’t showing the innovation Apple has demonstrated, and its brand is unknown outside of the smartphone market. Its current owners are fiercely loyal – but so were the predecessors, the Palm fans, and that loyalty quickly ebbed as the company ceded ground to new players. Honestly, though, I don’t think it matters who wins. In fact, I rather hope that Apple and Google are shaken by some new entrant just as they’ve been shaking up the old handset makers. What matters is that there’s a fight. That means we’re in for a period of rapid development, as each of these companies fights to win over our hearts and minds with beautiful hardware and powerful software.

Better still, that fight will be driven by consumer electronics manufacturers and software houses, not telephone network providers. We saw a flurry of competition in the years after the liberalisation of the telephone networks, but mobile companies have been sclerotic and complacent with their profits and their infrastructure.

The smartphone revolution stands to shake up old PC players like Microsoft, old handset makers like Nokia, and all the old mobile communications companies that expected the 21st century mobile world to match the comfortable old 1990s mobile market. Let the best of them win. And let the best of them be fresh and new faces.