Smartphone Market Environmental Analysis: Porter's Five Forces

Introduction: Wireless Technologies and Smartphone Competition

Wireless technologies, hardware platforms, and the operating systems enabling them are among the most disruptive series of innovations influencing how people, companies, organizations, and entire nations communicate (Bradley, 2010). Leading this transformation is the continual development of operating systems and applications that are making enterprise application-level functionality available on smartphones and tablet PCs at an increasing rate. Microsoft and its Windows Mobile operating system — along with the company's recently announced alliance with Nokia — the initial success of the Apple iOS operating system, and the rapid growth of the Google Android operating system all illustrate how competitive the smartphone market has become.

The evolution of hardware standards, including 4G and EV-DO (Evolution, Data Optimized), is also making smartphones and tablet devices 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 whether a Wi-Fi connection is available. 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 identified mobile computing initiatives — including operating systems and application support — as their primary long-term priorities (Arnold, 2011). Their strategies form the foundation of this analysis.

Analysis of 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 defining smartphones as more than a telephone replacement and more of a computing platform (Zeichick, 2008). Apple's many efforts to turn iOS into a market standard have been successful in consumer markets, yet the platform is still challenged by concerns over total cost of ownership and security in the enterprise computing market (King, 2010). Google appears to be learning quickly from Apple's challenges, as the Android operating system was outpacing Apple iOS and Windows Phone operating systems by a wide margin as of the close of 2010 (Arnold, 2011).

Both Google and Microsoft designed their operating systems to ensure broad hardware support and adopted a source code policy far more open than Apple's, which led to more developers building applications on Android and Windows Phone compared to iOS as of late 2010 and into 2011. Another critical lesson learned is that differentiation is most effective in smartphone systems at the intersection of innovation and open architecture, which is why Google and Microsoft have both taken such an aggressive stance on Application Programming Interfaces (APIs) compared to Apple (Arnold, 2011). While Microsoft and Google largely view the smartphone market the same way on the question of architecture and openness to developers, Android is far outpacing Windows Phone operating system versions due to richer functionality support and broader platform definitions (Lyons, 2010). Google has done a much better job of recruiting and retaining key developers over time and has defined a more efficient approach to onboarding processes, enabling developers to bring their applications to market quickly (Pocatilu, 2010).

In the broader competitive context, the smartphone and tablet markets have now eclipsed traditional PC markets globally and will continue to accelerate as disruptive innovation dominates the industry (Voight, 2010). As Apple continues to pursue an aggressive closed-architecture strategy, Google is likely to create a more compelling value proposition for developers over time, as they will have greater freedom to define, implement, and market their applications on the Android platform (Anthony, 2010). Microsoft at times appears stuck in a mentality of replicating its PC operating system strategies in the smartphone market — an approach that has so far been lacking in overall market penetration and growth (Allen, 2010). Microsoft's greatest challenge is to translate its considerable internal innovation and talent into a compelling business proposition for developers it hopes to attract to the Windows Phone operating system. The application development figures suggest this effort has not yet succeeded. Android is on a growth trajectory that may allow it to eventually overtake Apple iOS and emerge as the bigger winner in this market.

Developer Relations and Ecosystem Strategies

A major differentiator among these companies is how each views its developer community. Apple tends to cannibalize its developers over time, particularly in areas where the company can gain significant differentiation at the operating system level. Google and Microsoft, however, have approached developers as their most important customers for their respective operating systems (Pogue, 2010). As a result, Android has been able to grow at nearly a 700% pace in application development over a two-year period, with a small initial base of applications partly inflating the very rapid growth rate of applications launched on the platform (Pogue, 2010).

Apple, by contrast, has pursued differentiation through a rapid pace of innovation tightly integrated with gradual improvements in firmware and phone-based technologies (Rose, 2010). Apple has also relied heavily on digital camera technology, video streaming, messaging protocol support, and the ability to capture, edit, and publish videos in real time (Raphael, 2010). The long-term goal for Apple in the smartphone market is to continually fuel the economics of the iTunes ecosystem by developing platforms — such as the iPhone and iPad — that 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 model is widely emulated by Nokia, Microsoft, and others; as of March 2011, Google was rumored to have a music service under development, and Amazon.com had launched a competing service in late March of that year.

Conclusion

The smartphone market continues to be one of the fastest growing globally as Google and Microsoft battle each other for consumer and enterprise customers. Of the two, Google holds a strong advantage in its ability to recruit, retain, and motivate developers over time. Google also provides a more accessible sales channel for Android applications compared to Microsoft, which had only approximately 20,000 applications completed while Android supported over 400,000. As a result, Android as both a business model and a development platform is taking on increasing importance for software developers worldwide.

Microsoft will rely on Nokia as its hardware platform and work to align its Windows Mobile operating system with Nokia's electronics and firmware expertise. This approach, however, is unlikely to be sufficient to dominate a market in which any hardware manufacturer or cell phone producer can quickly adopt and deploy Android within a matter of weeks. The structural openness of the Android ecosystem, combined with Google's demonstrated strengths in developer relations and application volume, positions it as the probable long-term leader in the global smartphone market.

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