Apple's iPhone forcing smartphone industry change

By Jonny Evans

The intensely competitive smartphone industry is becoming an increasingly challenging space. Analysts say Apple [AAPL] has achieved the largest share of hardware sales and revenue, putting competitors on any current platform (Android, Microsoft, RIM, etc.) under lots of pressure. In this environment, surely it won't be long until another round of mergers and acquisitions begins?

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[ABOVE: Thanks to Asymco for this image, which shows how much things have changed since Apple invaded the mobile industry with the iPhone.]

Apple's game to lose

Surely it's obvious? Think about this: Asymco's Horace Dediu, believes four of the biggest smartphone makers lost money in the last quarter: Nokia, Motorola, Sony-Ericsson and LG.

I can understand the need to invest in this both lucrative and intensely competitive space, but just how does losing money on handset sales make a good business?

I believe this weakness makes it very likely that consolidation between different manufacturers is inevitable. The growing link between Nokia and Microsoft is a hint of how these connections are now evolving.

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[ABOVE: iPhone growth.]

Dare to be different

Dediu notes Apple is taking 55 percent of the profits of the mobile business. That's a huge chunk of cash.

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

Apple achieves this by offering a device which, while more expensive than many alternatives, is wildly popular with low return rates and high user satisfaction levels. The secret is Apple's differentiation. It offers a unique system.

Not so elsewhere. Five of the eight biggest manufacturers make Android devices. I've warned about this before. This lack of differentiation means Android device manufacturers are in a race to the bottom.

They are competing in the smartphone business only because Google is supplying the OS -- perhaps they lack the level of required software expertise to built a modern smartphone OS.

This means that without Android they'd be focused on Windows, which isn't selling well. Or they wouldn't be around.

Android isn't a unified army. Android handset makers aren't just competing against Apple on features and price, but also against each other. It must be tough making decisions on components, handset costs, features and street price. It makes it hard for competitors to create elegant solutions in answer to questions such as, "What would Steve do?". 

Every new hardware feature addition, no matter how tiny, impacts on the per-device bottom line, and in a value-conscious market that also impacts on revenue.

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[ABOVE: With the iPhone 5 scheduled for introduction this September, can we learn from iPod sales? Look at the Holiday season spikes which followed each previous Apple music event.]

Driving seat

Apple, not Android, is driving the feature race: Has the introduction of NFC support within Google's smartphone OS kick-started deployment of NFC-ready terminals at your local shops?

Apple faces tough adversaries:

  • RIM remains a challenge. The company will certainly be planning a counter-attack to regain its smartphone crown, assuming it can rally internally.
  • Microsoft and Nokia will remain in the game for as long as they can, applying similar PC platform advantages, but to little avail as yet.
  • Samsung and HTC remain the biggest existing hardware threats, with bitter IP disputes going through the courts.
  • Some firms may eventually find themselves making more money from licensing their own IP than they might through manufacturing devices.

Responding, Apple's platform-based strategy comes clearer with the introduction of iCloud. This will mark a major step toward a completely-connected vision of hybrid computing in which the perceived usage barriers between the PC or Mac and/or mobile device will eventually completely disappear.

The coming introduction of the new iPhone(s?), along with iCloud services will pose a huge challenge.

Will competing smartphone firms be able to fight this war on Apple's terms, or will they be forced into more focused attempts at specific niche markets where they can perhaps excel? What would be the likely impact on other firms should Apple make an attempt to widen its addressable markets this Holiday season?

What do you think? Let me know in comments below.

Please do follow me on Twitter so I can let you know when I post new reports here at Computerworld

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