iPhone Competitor Forecast: Stormy with a Chance of Fail

“You can't just beat a team; you have to leave a lasting impression in their minds so they never want to see you again."

-- Mia Hamm

In the 1990s, when Apple was in trouble, bad press was a symptom of troubles for a company with the weakness of one product: Macs. These days, however, one must differentiate between negative press about Apple's iPhone and fundamentally bad forecasts for its competitors.

Apple has taken a lot of heat for its iPhone app approval process. Some notable developers have left the fold in a public hissy fit. As my distinguished colleague, Ted Landau, pointed out, the process needs an overhaul. Even so, I firmly believe that the minor ruckus will have absolutely zero effect on the iPhone sales growth. That's because these minor issues are on a wavelength that most iPhone customers ignore.

The more fundamental problems of Apple's competitors, in contrast, are starting to take their toll. Why is that?

Underestimating Apple

When Apple entered the smartphone business, it started with the fundamental concept that the iPhone is a computer that also makes phone calls. Because Apple had many years experience making computers, and six years experience with BSD (2001-2007*), it understood how the hardware and software had to work together to make a smartphone truly delightful to use -- as a computer.

Pundits who criticized Apple's prospects for success in 2007 didn't understand that Nokia, Samsung, Motorola and RIM had much less experience with building computers and great user interfaces. In that sense, those competitors were ill-prepared to meet Apple's threat.

Moreover, each of Apple's competitors has turf to protect. Depending on another company for its future an be risky. That's why Samsung is rolling its own smartphone Linux variant, Bada. That kind of practical thinking may seem prudent, but is also dangerous. It's a symptom of a company that feels it has nothing special to offer.

That Samsung decision alone is going to create some balkanization amongst Apple's competitors. Just as Microsoft brought coherence to the desktop PC world with Windows NT in the 1990s and defeated the efforts of the heavyweight UNIX workstation vendors (HP/HP-UX, SGI/Irix, DEC/DEC UNIX, IBM/AIX, and Sun/Solaris), Apple is bringing a single, focused, proprietary iPhone OS to bear against the fragmented efforts of the competitors. In this case, whether we like it or not, Linux and "open" means "developer chaos."

Apple's Impact on the Market

In addition to that, Apple's experience with computer technology and development tools is starting to have an adverse impact on the other guys. For example, Cody Willard at MarketWatch recently wrote about the "Three Problems facing RIMM." Amongst all the other problems RIM now has, here's what he had to say about apps on the BlackBerry: " It’s not about the number of apps. It’s about how easy it is to use the apps and how many apps actually bring value.... You tried gaming on the Storm? I’d rather play pong." Mr. Willard is doubtful about the future growth prospects of RIM and is wary of investing there.

Windows Mobile is continuing to fade as smartphone makers realize that it's not a competitive OS. Windows Mobile 6.5 was too little too late, and Windows 7, due next year, will be far too little, far too late. Smartphone makes don't have time to wait for it. As a result, Windows Mobile has lost 28 percent of the smartphone market share, going from 11 percent in 2008 to 7.9 percent a year later. Microsoft may well be out the door in this war.

If Steve Ballmer liked his prospects with Windows Mobile in 2007, he must be throwing some chairs these days.

Nokia, the world's leader in total mobile phone sales seems to be having new problems deciding on its OS strategy. There were some murmurings about embracing Android last summer, but Nokia seems to have decided against it. Stefan Constantinescu had this to say about the results of Nokia World 2009:

"The [new] software, Maemo 5, is a pain in the ass for developers since Nokia has admitted in public that Maemo 6 will come out in a year and it will break compatibility due to a switch from the GNOME environment to Qt. The browser, built on top of Mozilla technology, the same code that powers Firefox, is a step away from WebKit, the browser engine that powers Safari in the iPhone, the browser in Symbian, the browser in Nokia’s dumbphone OS known as S40, the browser in Android and soon the browser in RIM BlackBerry devices. Why is Nokia supporting something contrary to what the industry has already accepted as best in class? What’s the strategy?"

Technical mistakes and internal politics can sink a company in an intense competitive environment. Mr. Constantinescu didn't perceive a coherent strategy. There may not be one.

While the launch of the Motorola Droid may not have been as big a splash as Verizon had hoped, the one thing the Droid did achieve was pushing the Palm Pre even further off the radar of users. That is, Droid's merely modest success compared to the iPhone 3GS launch has damaged Palm, not Apple.

Knowing What Business You're in is Good

So let's summarize. Nokia is wandering, not ready to commit to Android, making uncertain technical choices for its smartphones. Samsung is going to go its own way with Bada with yet unknown consequences. RIM, tied to the enterprise, is having problems engendering a boatload of easy to use apps and is way behind Android's 10,000+ apps. Microsoft has completely blown it with Windows Mobile 6.5. Motorola has been on life support for some time, and the Droid is not the smartphone many were looking for. Palm already had its 15 minutes of fame with the Pre.

Meanwhile, despite some issues with the app approval process, the financial prospects for the Apple iPhone just keep getting better. For example, "Apple Shoots Past Nokia As World’s Most Profitable Handset Vendor." Apple's share of the smartphone market keeps rising and international prospects continue to be excellent.

Apple's competitors still haven't figured out that they're in the computer business, not the phone business. And they are, so far, helpless to extricate themselves from a decade long mess the've gotten themselves into.

Wishful Thinking vs. Pure Execution

That's why, when we hear about minor squabbles in the iPhone community, they pale in comparison to the market realities of the competition. Even so, some publications will drag out some minor Apple issues and have you believe that, in contrast, all is well in the rest of the market. The facts cited above just don't bear that out.

Despite all this sobering bad news, there are those who believe that, iike Windows vs. Mac OS in the 1990s, Android's openness will save the day for the competition and eventually allow Android to surpass the iPhone in market share. Who says that?  Gartner. (Enough said.) And if you'd prefer an alternative opinion, based on that wishful thinking combined with no research, there are plenty to go around.

Instead, I believe that things will start to go badly for Apple's competitors next year. Come summer, there will be some kind of industry panic that will bring on some strategic partnerships, standards discussions, and a consortium. It will be like what the UNIX workstation vendors in the 1990s tried to do with the Common Desktop Environment (CDE) for UNIX workstations. They'll believe that this will fix their problems, but it will only serve to distract the smartphone makers and delay their coming to grips with their fundamental problems.

It's the end of the year and a popular time to make predictions. Here are mine. By the summer of 2010, Apple will have an announcement with Verizon that will have the competition changing its underwear hourly, a new 4G phone, 200,000 apps, 3+ billion downloads, and a complementary iTablet driving next generation app development. Boggles the mind.


* Plus Mr. Jobs' experience with NeXT before that.