Monday, April 4, 2011

Apple Mobile Competitors: A Quality/Quantity Conundrum

IDC predicts that Android and Windows Mobile Phone 7 (or whatever it's called) will take the top two phone operating system slots by volume in the next several years.

Among the leading causes of Microsoft's reversal of its longstanding share decline is a decision by Nokia to kill its own OS in favor of Microsoft's. Just imagine: the world quantity leader in cheap phones, and the world's quantity leader in irritating and buggy desktop operating systems, joining forces to make a consumer product you can carry with you and depend on to function properly under adverse and uncontrolled conditions!

The more interesting question is whether Android's share will be in high-margin products that are genuine iPhone competitors, or whether Apple will dominate profit in phones into the future as it dominates in PC profits. If Nokia and Microsoft appear poised to make the next wave of commodity devices, but Google raises some interesting questions about how hardware partners will perform and whether together they will be able to build something that speaks to users like Apple's products apparently do.

Assuming IDC's volume predictions are accurate (a premise not without trouble; Nokia/MSFT could easily make a perfect storm of mediocrity incapable of sustaining share, and lack of carrier lock-in could impact Apple's addressable market favorably even as its hardware continues to refine and improve), we could be headed into a realm in phones like the one in PCs: Lots of folks sell boxes, but only Apple makes real money in the deal. (MSFT's trivial incremental cost of selling a license makes its software extremely profitable; to gain phone share, though, MSFT may be willing to take a serious haircut on the theory that it needs to choke off competition. NOK's decision to dump its own OS in favor of one with a per-handset licensing fee is an odd choice for a high-volume producer otherwise.)

Does someone outside Apple have a moat in premium phones?

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