The Scale, Competitiveness, And Industrial Strategies In Mobile Computing

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Editor’s Note: Semil Shah works on product for Swell, is a TechCrunch columnist, and an investor. He blogs at Haywire, and you can follow him on Twitter at @semil.

I will admit upfront – I am finding it hard to keep up with all the major moves happening in mobile and among the top technology companies. I realize intuitively all these moves are critically important, but I had to sit down last night and catalog each and every major event, dating back to when Steve Jobs introduced the iPhone, to put a basic framework around the industrial strategies we see to today. Here’s what I came up with.

Over six years have passed since Apple gave birth to the iPhone, controlling both its software and hardware, to form a product so disruptive it is still forcing large, entrenched technology players to make bold moves in a future that is defined by mobile computing. About two years ago now, Google acquired Motorola. Firefox has concentrated efforts into Boot to Gecko, an operating system designed for mobile devices. Facebook launched an “apperating system” called Home on the HTC One. Samsung’s CEO proclaimed he wanted all devices to run on Tizen. More recently, just this past week, Microsoft acquired Nokia’s handset business. Rumors swirl about RIM’s future, as the company has said it is exploring a sale or going private, as if that will do anything but delay the inevitable. Across the Pacific, China’s Xiaomi has been making waves, running a version of Android, of course. If all of this wasn’t enough, to thicken the plot, former WSJ reporter Jessica Lessin scooped that Amazon wants to offer its smartphone for free.*

All of this is happening over the last two years only — mind you — as Android adoption is reaching logarithmic levels and is being happily “forked” by other players, so much so that Bill Gurley presciently dubbed Google’s defensive strategy with Android to possibly be “the greatest legal destructive of wealth in history.” We’re not done. We are also on the verge of Apple announcing lower-cost phones in an effort to gain more marketshare as Android continues to grow and as corresponding hardware quickly catches up. By lowering the price of their devices into a wider number of price points, Apple hopes to open the gates a bit wider for a new crop of users to enjoy their well-kept garden of beautiful apps and controlled operating system. As this wasn’t complicated enough, Google is marketing Google Glass, and Apple and Samsung are going for smartwatches as complementary mobile computing devices.

Perhaps all of these moves provide a backdrop for “The Rule of Three” to eventually emerge in the mobile industry. This rule, coined back in the 1970s by the founder of the Boston Consulting Group, contends that in any given industry in an open and competitive environment, the market can support three companies, which roughly have a market share, respectively, of 4:2:1. If this rule holds in this industry (and, of course, we have no idea if it does), it may be tempting to assume Android will be the 4/7 category leader. However, the market for mobile devices may be a rule-breaker. First, the market is already enormous and growing at a tremendous pace. Second, the open nature of Android and its ability to be forked by other players and contorted to their needs could shatter this traditional ratio and force all other operating systems, including Apple’s, to only control a small slice of the market. Third, what if another operating system captured the emerging market for phones on a low-cost model? In that scenario, Apple would be left in a ground war to make sure their product fit the allowances of others and could be manufactured at enough scale to meet the demand.

The industrial strategies here point to high stakes. For Apple, it’s quality and profits — it segmented the consumer market for handsets to the point where it could extract insane levels of profit while many devices commoditized. For Google, it’s scale and defense through offense — Android’s open nature affords it the ability to spread and fork, giving it momentum to blanket devices and grow exponentially. Platforms are often winner-take-all endeavors, again perhaps breaking the Rule of Three. Given all these moves, when I step back and think about what it all means for the players, here’s what I see — I see Android blanketing the device ecosystem, either directly or through forks. I see Apple continuing to extract out handsome profits from their hardware, but not forever — the clock is ticking on that. Apple will be under pressure to invent the next game (perhaps with iWatch?) as it did with iPhone already. And, I see a fascinating race between a host of other players to grab third-place position, or maybe even second-place.

Finally, in a world where scores of consumers own powerful devices around their homes and apartments, and carry them around in their pockets, the opportunity for mobile computing through other devices (watches, trackers, sensors, etc.) is enormous. Everyone knows this, of course, which is why so many people are interested in hardware, in the Internet of Things, in quantified-self tracking and data collection, and new interfaces like glasses and watches. So, the excitement is real and is warranted. The possibilities in mobile computing may actually be under-hyped relative to their potential and addressable market size, and while it will take years, maybe decades to unfold, it will create the space for entirely new consumer experiences, new business applications, and for the platform victors and serfs, riches and power on a scale we have yet to see in technology.

* Note: Many of the links above, in the second paragraph, refer to great blog posts written over the last three years by Steve Cheney, John Lilly, Andrew Parker, Hamish McKenzie, and others. Please read their work, they are all  quite prescient having written these over the years.

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