The Virtuous CIO  

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May 11, 2010 — Are Cell Phone Platforms Important?

I think it is clear now that 2010 will go down as the year of the smart phone. Last year's release of Windows 7 was greeted with sighs of relief by the technical community. Last week’s release of Ubuntu Karmic resulted in polite applause and an acknowledgment that Linux is getting there. Today's enthusiastic office 2010 announcement by Microsoft was greeted by yawns and a tepid so what.

The news this year seems to be focused on the smart phone space. The rapid migration of the American cell phone user to intelligent devices is reflected in media frenzy about every vendor’s impact in this market. On the one hand we see Palm's offering as moribund (and being absorbed into Hewlett-Packard), and Windows Mobile thrashing about in a messy death. On the other, we see RIM leading the market, Apple setting new sales records, and Android rapidly gaining market share.

Apple's introduction of the iPad is seen by many as finally legitimizing the tablet market, yet, I wonder if it isn't merely the extension of the very successful iPhone OS franchise. The iPhone is wonderful, the iPod Touch is cool, and the OS obviously scales very well to a tablet-sized device.

The cell phone providers and many in the industry are very concerned about the potential for Apple hegemony over this market. But, from an end-user perspective, or perhaps from the halls of IT, do we really care?

To answer the question we need to examine the nature of vendor lock-in. Lock-in is the dream of every major vendor in the technology world. The recurring revenue from millions of classes and customers, grazing in the verdant fields of data is astounding. Even a product widely considered to be a flop like a Vista brought billions of dollars of revenue to Microsoft. This largely occurred because the customers had no real choice.

Lock-in occurs when a vendor is able to enforce conformity among the customers. The customers will spend dollars in support, upgrades, and additional licenses to maintain compliance with the vendor requirements. Typically this situation occurs when the switching costs are higher than the customer wishes to pay. Vendors are often unable to avoid taking advantage of the opportunity to milk every last dime of revenue from an increasingly unhappy customer base. The vendor assumes this happy state of affairs will continue indefinitely, while the customer is likely watching for a solution which will allow them to eventually break free of this form of slavery.

Considering these things we can ask ourselves if the smartphone industry represents that state of affairs. The answer is yes… and no. The major vendors have certainly structured their offerings to lock in the customer. Rim uses its proprietary operating system and the Blackberry Enterprise Server to tie users to its solution. Apple uses its iTunes store and lock down of its devices to tie customers to its apron strings. Android and Windows Mobile also use the App Store arrangement, however customers are not locked in, and neither are developers. The government and regulatory agencies have long since broken any lock-in arrangements used by the cellular providers.

So is this a good example of lock-in? I believe the answer is no. First of all there is a considerable amount of competition in this industry. No single vendor (either hardware or software) is strong enough to call the shots.

Secondly, in all but a small percentage of uses, smartphones are not strategic. While they are incredibly convenient it is rare for a business to depend upon them. Customers are very willing to take their marbles and go elsewhere if they feel their vendor is taking advantage of them.

Thirdly, and this is fairly close really related to the second reason, smartphones are a convenience item. People use Blackberries because they are convenient. While the iPhone is the most impressive piece of technology of the past decade, it is used primarily because it is convenient. Android usage is growing because people are discovering it to be convenient to use. Once the fad has worn off, the iPad will ultimately be successful because it is convenient to use. Windows Mobile is dying because it's inconvenient to use.

Once the vendor makes a device inconvenient, whether through pricey data plans, or limited access to software, or limited utility, people will begin deserting in droves. This will happen because the switching costs are low. Apple’s customers are willing to put up with its anti-social behavior (so far), because the devices are convenient. So let's modify the answer to the question asked at the beginning of this article. Cell phone platforms are not that important.

There is an implicit warning to Apple, to RIM, and to Google. Leadership in what is a consumer market (and not strategic) is ephemeral. Brand loyalty is a fleeting thing. The hard-core Apple fan-bois and Android tech weenies are not enough to support the products. To understand this lesson one needs only to look at the company that once owned this space - Sony.