Rivalries old and new

The central competition in the high end smartphone sector in 2010 was between Apple and Android; two relative newcomers to the mobile industry. But as the year drew to a close, a pair of old sector rivals—Microsoft and Nokia—were working hard to retain their own stakes in the game.

No year in this industry treats all players with the same indulgence and the close to 2010 saw the fortunes of protagonists in the ongoing smartphone saga varying wildly. As Apple made its first appearance in the top five handset vendors by shipments—still selling essentially only one handset model—the Symbian Foundation, which Nokia took open source in April 2009, was forced into some awkward emergency realignment. Meanwhile, the launch of Windows Phone 7 from Microsoft was the eventual result of a year-long recuperation.

There was a sense of inevitability about Apple’s arrival in the top league of global handset vendors. The firm has had a strong showing in the smartphone rankings since the deployment of the first iPhone but figures for the third quarter of the year from IDC saw the Californian firm overleap both Sony Ericsson and dedicated smartphone vendor Research in Motion to claim a coveted fifth place. An improvement of more than 90 per cent year on year for Q3 sales saw Apple ship 14.1 million units. The Q4 approach to Christmas will no doubt see the firm break yet more records.

And for some observers, the experiences of Nokia and the Symbian Foundation, while less agreeable than Apple’s, were similarly unavoidable. The cracks started to appear late in October, when the Symbian Foundation issued a terse statement announcing the immediate departure of executive director Lee Williams. Such statements say everything by saying nothing and it was bad timing for Nokia, which was still trying to generate enthusiasm around the latest iteration of the platform. The announcement was made just days after Nokia had unveiled three new Symbian ^3 handsets.

Those in the know suggested that the Foundation was financially destitute and headed for collapse, forcing Nokia into yet another emergency rethink.

The creation of the Symbian Foundation in 2009, and the positioning of the Symbian OS as an open source platform developed by and for the wider handset community, was intended to draw a line under the view that Symbian was simply an extension of Nokia. The strategy didn’t work, however, and so in November this year the Foundation was repositioned once more as a “legal entity responsible for licensing software and other intellectual property, such as the Symbian trademark.”

Nokia, meanwhile, had to face the lonely reality of the fact that it is the only vendor interested in creating Symbian ^3 product and did so by doing away with ^3 and ^4 branding, consolidating all releases under the ‘Symbian’ umbrella .

All of which may well have been observed by Nokia’s old arch-rival, Microsoft, with a measure of Schadenfreude. The Symbian Foundation’s misfortunes came hot on the heels, after all, Microsoft’s own attempted renaissance in the smartphone space, with the launch of Windows Phone 7.

Clearly Microsoft has been paying attention to the handset sector trends. WP7, it was noted by all when the first handsets were unveiled, bears a striking resemblance— in UI terms at least—to the successful format given to the industry by Apple and adopted by manufacturers of Android devices. Some neat touches, including live, updating tiles, offered a whiff of differentiation but the software giant is not, with its new handset OS, attempting a radical market overhaul. WP7 represents an attempt to win share through familiarity rather than distinction.

It was no surprise that Microsoft’s key hardware partner, HTC, was the provider of several of the launch devices. But it will be interesting to watch how much muscle HTC puts into its WP7 activities. Back in February 2009, when the firm had just unveiled its second Android unit, the Magic, one HTC executive told MCI that Android was seen within the firm as “an additional platform” to Windows Mobile, describing the Microsoft platform as “our DNA, our core business.”

But while Microsoft has been regrouping, HTC has been scoring significant successes with its Android play, emerging from the white label shadows with a branded handset offering which is gathering momentum. HTC sold 5.9 million units in Q2 this year, according to Gartner figures, and Android represented the biggest chunk of the business.

Gartner’s Q3 figures showed that uptake of Android devices has accelerated. There were 20.5 million Android devices shipped in 3Q10, second only to Symbian with 29.68 million devices. Microsoft, with WP7 models not launched until November this year, managed only 2.25 million units, behind Research in Motion and Apple. WP7 might be a lot better than its predecessor, but it has a long way to go.

While Microsoft looks to have its strongest smartphone offering for years, its old rival Nokia seems to be stumbling from one quagmire to the next

With this in mind, Microsoft is looking to its experiences in the PC market, says Informa Telecoms & Media principal analyst, Malik Saadi. “The interesting thing about WP7 is that it has a consistent user experience across devices,” Saadi says. “Microsoft is controlling the UI as well as other features, and it has set minimum hardware requirements for the vendors. Microsoft’s aim is to make the mobile market very similar to the PC market because their initial strategy of customising for the operator and allowing flexibility for the OEMs didn’t work.”

If Microsoft is successful, Saadi says, its key OEM partners will be unable to differentiate on software and, restricted to hardware tweaks, will essentially become “assemblers”. Saadi says he is surprised that Microsoft’s OEM partners were happy to follow its chosen route, suggesting that the software firm may have subsidised the products available at launch.

Nonetheless, the smartphone space is far more concerned with software today than it is with hardware. For the time being the industry seems to have settled on the best effort form factor, despite the ongoing popularity in some segments for hard keypad, or the option of a hard or a soft keypad, for example.

It was Apple that set the standard for form factor, and Apple that pulled the handset community into its next phase of evolution with its user interface. Now, however, Saadi says that Apple’s leadership in the sphere of user experience has been eaten away to nothing. Its competitors have caught it up. “It is no longer a matter of asking whether or not Apple can be caught,” he says, “It has been done, in fact. There is almost no gap between WP7 and the iPhone in terms of user experience, and if you look at the DroidX you could argue that it has a superior UE. Apple’s lead in this space is already history,” he says.

And there is some evidence that, if Saadi is right and Microsoft is looking to relegate hardware yet further, it could meet with success. Gartner’s figures for smartphone sales in the third quarter of this year show that the combined market share of the five leaders is being eroded by the anonymous Asian white label vendors that make up the “others” category in the rankings. “This is having a profound effect on the top five mobile handset manufacturers’ combined share, which dropped from 83 per cent in the third quarter of 2009 to 66.9 per cent in the third quarter of 2010,” says Gartner’s research vice president, Carolina Milanesi.

So while Microsoft looks to have its strongest smartphone offering for years, its old rival Nokia seems to be stumbling from one quagmire to the next. While Symbian remains open source, Nokia will likely be the only vendor to deliver high end product based on the platform, which will place a considerable strain on its software budget. Informa’s Malik Saadi predicts that Nokia will instead focus on Meego—the Linuxbased OS it announced earlier this year with Intel—for high end product, using Symbian to replace Series 40 in the low-end smartphone and feature phone tier.

It is not inconceivable that Nokia will look for another OS string to add to its bow, though, and Android or WP7 are the only two options. Both routes would probably send shivers of distaste down the spines of Nokia’s leaders but the fact remains that, in the high end, it closes out 2010 looking more assailable than it has ever looked before. Nokia’s situtation will probably get worse before it gets better given that there are no fast fixes in the smartphone market. Microsoft and Sony Ericsson are both examples of players that have taken extended periods to lick their wounds and rethink their positions before coming back with improved offerings.

Saadi suggests it could take Nokia years to get itself back on track in the high end smartphone segment. “If I had some money on Nokia I would pull it out right now,” he says. “I don’t believe that they’ll come back in the near term.”


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