Wireless technologies, hardware platforms and the operating systems enabling them are the most disruptive series of innovations influencing how people, companies, organizations and entire nations communicate (Bradley, 2010). Leading this transformation is the continual developments in operating systems and applications that are making enterprise application-level functionality available on smartphones and tablet PCs at an increasing rate. Microsoft and their Windows Mobile operating system and their recently announced alliance with Nokia, the initial success of the Apple iOS operating system, and the rapid growth of the Google Android operating system illustrate how competitive the smartphone market has become. The evolution of hardware standards including 4G and EV-DO (Evolution, Data Optimized) are also making smartphones and tablet devices even more ubiquitous and free from the constraints of previous-generation Wi-Fi technologies (Bradley, 2011). EV-DO and 4G technologies allow a smartphone or tablet PC to be used anywhere without regard to a Wi-Fi connection being available or not. Apple, Google, Microsoft, Nokia, Research in Motion (RIM) and many others are all vying for a large share of the smartphone market, each taking a unique approach with their applications and operating system strategy (Brady, Miller, 2010). While Apple has an early lead in this market, Google and Microsoft have both defined mobile computing initiatives including operating systems and application support as their primary priorities for the long-term (Arnold, 2011). Their strategies form the foundation of this analysis.
Analysis the Smartphone Industry
While there had been over a decade of development preceding their entrance into the market, Apple's iPhone OS, called iOS, was a pivotal point in the defining of smartphones as more than a telephone replacement and more of a computing platform (Zeichick, 2008). Apple's many efforts to get the iOS turned into a market standard has been successful in the consumer markets, yet still is challenged by concerns over Total Cost of Ownership and security in the enterprise computing market (King, 2010). Google appears to be learning quickly form Apple's challenges as their Android operating system is outpacing Apple iOS and Windows Phone operating systems by a wide margin as of the close of 2010 (Arnold, 2011). Both Google and Microsoft have designed their operating systems to ensure broad hardware support and a source code policy much more open that Apple's, which has led to more developers building applications on Android and Windows Phone compared to iOS as of late 2010 and 2011. Another critical lesson learned is that differentiation is most effective in smartphone systems at the intersection of innovation and an open architecture, which is why Google and Microsoft both have taken such an aggressive stance on Application Programmer Interfaces (APIs): compared to Apple (Arnold, 2011). While Microsoft and Google and in large part seeing the smartphone market in the same way on this point of architecture and openness to developers, Android is far outpacing Windows Phone operating systems versions due to the richer functionality support and definitions (Lyons, 2010). Google has done a much better job of recruitment and retention of key developers over time and has also defined a much more efficient approach to defining onboarding processes for developers to get their applications quickly to market (Pocatilu, 2010).
A second major differentiator is how each of these companies view developers. Apple tends to cannibalize their developers over time especially in areas where the company can gain significant differentiation at the operating system level. Google and Microsoft however have taken the approach of seeing the developers as the most important customer they have for their operating systems (Pogue, 2010). As a result, Android has been able to grow at nearly a 700% pace in application development over the last two years, with a small base of initial applications partially inflating the very rapid growth of applications launched on this platform (Pogue, 2010). Apple on the other hand has defined differentiation through a very rapid pace of innovation that is integrated to gradual improvements in firmware and phone-based technologies (Rose, 2010). Apple has also relied heavily on the use of digital camera technology, video streaming, messaging protocol support and the ability to capture, edit and publish videos in real-time (Raphael, 2010). The end game for Apple in the smartphone market is to continually fuel the economics of the iTunes ecosystem by having platforms (like the iPhone and iPads) that can function as video production and viewing devices (Allen, 2010). Approximately one of every three dollars that Apple generates in profits is directly tied to an iTunes transaction or device experience (Chartier, Moren, 2011). As a result, the iTunes ecosystem is widely emulated by Nokia, Microsoft and others, and Google is rumored as of March 2011 to have a music service under development, as Amazon.com launched one in late March of this year as well.
For Microsoft, their hardware partner Nokia and Google the action is in the enterprise market however. This adoption of smartphones and tablet PCs into enterprises and corporations is worth literally tens of billions of dollars in revenues over the next three to five years. The revenue streams in the enterprise market are why Apple, Microsoft, Nokia and Google are so intently working towards capturing with their operating system design, developer relations programs, and rapid pace of innovation (Voight, 2010). A recent survey of applications completed as of this point shows there are 250,000 Android applications, 400,000 Apple iPhone OS applications and just fewer than 20,000 for the Windows Mobile operating system (Strohmeyer, Perenson, 2011). Microsoft has said their top priority is the enterprise software market and this I why they have designed their operating system to have closed source code yet be carrier agnostic, meaning any cellular phone that has the necessary components can support it (Van Zuiden, 2010).
In conclusion, the smartphone and tablet markets have now eclipsed the traditional PC markets globally and will continue to accelerate as disruptive innovation dominates this industry (Voight, 2010). As Apple continues to pursue an aggressive closed architecture strategy, over time Google will most likely create a more compelling value proposition for developers, as they will have greater freedom to define, implement and market their applications on the Google smartphone operating system (Anthony, 2010). Microsoft at times seems to be stuck in the mentality of attempting to replicate their operating system strategies for PCs into the smartphone market, which to this point has been lacking in terms of overall market penetration and growth (Allen, 2010). Microsoft's greatest challenge is to translate the formidable innovation and intelligence they have internally into a compelling business proposition for developers they are attempting to get supporting the Windows Phone operating system. To this point, it's not going well as can be seen by the figures of applications developed. Android is on a growth pace to eventually overtake Apple iOS and may emerge the bigger winner in this market.
Analyzing the Smartphone Environment Using Porter's Five Forces Model
Of the many frameworks, which can be used for evaluating the smartphone market environment, the Porter Fives Forces Model is best suited for this task as it takes into account the factors that contribute to competitive rivalry over the long-term. According to market researcher Ovum, who is one of the leading consultancies tracking the smartphone competitive landscape, their analysts predict the market is growing at a rate of 74% a year from 2010 to 2014. The following table provides insights into the Global Smartphone Product and Services Market from 2010 to 2014 by geography. North America is considered to have the fastest growing market for both products and services during the forecast period.
Table 1: Global Smartphone Product and Services Revenue Forecast (Dollars in Billions)
Source: Ovum Research based on studies of the following sources: (Caulfield, 2010) (Chartier, Moren, 2011) (Jaroslovsky, 2010) (Vickers, Frey, 2010) (Arnold, 2011)
The competitive rivalry within the smartphone market environment aligns well with the core concepts of the Porter Five Forces Model. The rapid innovations in new market entrant activity as it relates to device and operating system development, coupled with the critical role of suppliers and the increasing expectations of consumers all combine to define a volatile and fast-moving market (Edwards, 2010).
Figure 1: Five Forces Model of the Mobile Device Industry
Source: (Porter, 2008)
When the Five Forces Model is applied to the smartphone market, it is clear how turbulent this industry is. The cost of manufacturing is one of the sources of competitive advantage, as is the ability to run a successful developer relations program at the smartphone operating system level. These two sources of competitive advantage is what Microsoft is aiming at with their partnership with Nokia. They want to create a competitive advantage at the hardware level by tightly integrating the Windows Phone operating system to the Nokia hardware and firmware. Google on the other hand has taken…