It’s been a big couple of weeks in mobile. Verizon Wireless finally got the iPhone. Hewlett-Packard (HPQ) unveiled the first fruits of its Palm purchase last year. Nokia (NOK), the world’s biggest handset maker, abandoned its once-dominant Symbian mobile software system and demoted itself to a kind of glorified contract manufacturer of Microsoft (MSFT)-powered devices.
The struggle for mobile dominance has entered a new phase. Why would Nokia throw out Symbian, with its 37 percent market share, in favor of software with less than one-seventh of that? Because recently hired Chief Executive Officer Stephen Elop is convinced that Microsoft has better odds of going up against the four other mobile powers—Apple (AAPL), Google (GOOG), Research In Motion (RIMM), and HP—and making its new Windows Phone 7 software a center of gravity for the world’s programmers, manufacturers, and consumers. “The game has changed from a battle of devices to a war of ecosystems,” Elop told investors at a London press conference on Feb. 11.
Actually, it’s the same game that created the most valuable franchises in tech history, from IBM (IBM) to Microsoft to Facebook. All successfully established themselves as “platforms,” in which countless entrepreneurs and programmers developed technologies that gave value to customers and profitability to shareholders—sucking oxygen away from rivals all the while. In the 1960s, IBM trounced Sperry and other mainframe makers by creating a soup-to-nuts stack of hardware, software, and services. In PCs, Microsoft erased Apple’s early lead by signing up hardware makers to create cheap machines, and software companies to develop Windows versions of everything from word processors to Tetris. Facebook vanquished social networks such as MySpace (NWS) by repositioning itself as a platform—a decision that led to the creation of gamemaker Zynga and other app companies that keep Facebook’s 500 million users hanging around.
What’s different this time is scale. “Mobile is the biggest platform war ever,” says Bill Whyman, an analyst with International Strategy & Investment. More smartphones were sold than PCs in the fourth quarter, and sales should reach $120 billion this year. That doesn’t count billions more in mobile services, ads, and e-commerce.
This war will probably last for some time, too. Unlike with PCs, where the unquestioned victor—Microsoft—quickly emerged and enjoyed years of near monopoly, no one has a divine right to dominance in mobile. Microsoft crushed its competition by forcing consumers to make a choice. There were far more software applications for PCs, and most didn’t work on Macs. The more Microsoft-powered machines out there, the more people wrote software for them, the more people bought them, and the bigger the whole ecosystem became. Economists have a name for that phenomenon: “network effects.”
All cell phones can talk to each other and handle the same websites and e-mail systems, so winning means making products that function more effectively and appealingly. That sums up Apple’s success. Steve Jobs figured out long ago that when people spend their own money, they’ll pay for something a lot nicer than the unsexy gear the cheapskates in corporate procurement choose. While others competed on price, Apple focused on making its products reliable and easy to use. Once customers buy an iPhone and start investing in iTunes songs and apps, they tend to stick with the ecosystem and keep buying—even though there’s no proprietary lock on the proverbial door. Apple’s huge sales volume makes carriers and suppliers more likely to agree to its terms. The software that powers everything Apple makes—all variations of the Mac operating system OS X—is as intuitive to developers as Angry Birds is to app shoppers.
Source:http://www.businessweek.com/magazine/content/11_09/b4217037985749.htm
