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Smartphone wars over, Symbian and MS both lost?

Sun maybe won, if you call 'enabling lack of victory' winning...

Events of the past few weeks have kind of undermined images of Symbian as the victor in the smartphone wars. Depending on how you look at it, last week at 3GSM the company was either staggering about with a dagger in its back, or David Levin was pointing a gun at his head and telling any shareholder who'd listen, "Buy more shares or the puppy gets it." Maybe a bit of both, but does it matter who wins/won? It's beginning to look as if there will be no Microsoft in the mobile phone market, and that quite a few outfits are a lot less important than they'd like to think they are.

If we take the winner's numbers first, we learn that 2.76 million Symbian-based phones shipped in Q4 2003, that December was its first million month, that over the whole of 2003 6.67 million Symbian phones shipped, and that by December the cumulative total shipped hit 10 million. Impressive, no? No. Estimates for total global sales of handsets for 2003 are comfortably in excess of 500 million. We haven't seen much in the way of Microsoft figures since some decidedly hokey ones about a year ago, but shall we tactfully presume they're somewhat lower? Together, the two major smartphone warriors have made little visible impact on the whole market.

IDC puts the smartphone market as a whole in 2003 at 9.6 million units, estimating the whole handset market as 533.4 million. It puts growth in the whole market at 23.3 per cent, and in the smartphone market at 181.6 per cent. Which yes, we know, tends to indicate that smartphone is where smartmoney should be, but that's a growth figure from practically zero to a bit more than zero, and it would be a desperate character (or a smartphone OS vendor) who'd bet the ranch on it alone.

Conversely, the fact that smartphones have not so far even rumpled the handset market's gymslip does not mean that they won't, one day; we need to look at other data to assess whether or not they'll ultimately rule, and/or which companies will ultimately win.

Esmertec's numbers perhaps have a certain relevance, but Esmertec is a company that will bear some introduction first. It has shipped something in the region of 45 million JVMs over a year, and claims a total of 65 million shipped for "mobile multimedia phones and embedded devices". The company is Zurich-based, and describes itself as "one of the leading independent software companies focusing on Java solutions and technologies for mass market mobile devices such as mobile multimedia phones, PDAs and home multimedia systems." At 3GSM it introduced Jcap, a component application platform to enable the production of customised mobile phones, and a sign of its current success is that it did not merely have a meetings boat, it had a meetings overspill boat too.

Now, as regards units that 45 million is big enough to be deemed significant compared to the whole handset market, and is probably large compared to the entire Java-capable market. Add in OpenWave and Java looks even more of a dominant force. You could argue that Java is not an operating system, but as Sun would counter-argue, that is the point; the underlying OS is not relevant. According to Jean Schmitt of Sofinnova, the VC outfit that backed Esmertec, the intent of Jcap is to provide "a bunch of APIs on top of the JVM that create a context for companies to deliver apps," and Esmertec itself is not going to deliver those apps. So if you're looking for models, you could maybe look at how determined Microsoft was to stop first Netscape and then Java on the PC, and note that what it feared is maybe already running amok in the mobile phone arena, where it doesn't have the installed base to do anything about it.

So maybe Sun's currently winning the mobile phone OS wars, which we can tentatively rename the platform wars, on the basis that a diminishing number of people at 3GSM seemed to give two hoots about the underlying OS anyway.

Schmitt has some more relevant numbers. The total bill of materials for handsets is not reducing fast enough, he says, and there's a growing throng of interested parties pushing to integrate more and more features. So increasing integration pushes against cost reductions, and this is much more of a problem in the phone market than it has been in the PC market.

"Networks are telling me," says Schmitt, "that if you go over a build cost of €200 I'm not even going to consider you," and that the target build cost is €100. Phones in the smartphone space (which is of course a moving target) are, through the addition of features, retaining a build cost of €200 or more, which in Schmitt's view means that mass uptake of this class of device will stall for a couple of years, "then we'll have the MS-enabled phone. In 2008, we might have phones big enough to run the software."

The desire for more features is not specifically a Microsoft disease, and very few big name technology companies keep saying '$100, $100' to themselves (significantly, Palmsource does) but you can see how the company that has benefited from Moore's Law for so long could find itself impaled on it. Earlier in the week Microsoft Mobile lead product manager Ed Suwanjindar told us hopefully that Microsoft's were the Swiss Army Knife of smartphones, with all sorts of features just waiting there for the market to take advantage of. But if Schmitt's* right, by the time there are sufficient units out there the market could have sorted itself out via other means.

There is clearly a dynamic that runs counter to the '$100, $100' mantra. If the addition to the build cost can be seen as a killer app, or killer app enabler, then spending an extra $10 or more could be seen by the networks as an absolute necessity. So in recent memory you could view camera phones, enabling picture messaging as a killer app, as being an example. In that sense too you could also see Nvidia's $10 pitch for the universal camcorder and mobile games platform as a kind of ratcheted killer app enabler; lots of money in the games platform eventually, but who can resist a phone with a 'free' high quality camcorder immediately?

Although new hardware can and does get through, the overall cost budget remains in place, and the presence or absence of a 'name' smartphone OS underneath does not seem of any great moment. The notion that you can build a great general purpose platform and it will then enable great applications may eventually work, but it's clearly not working yet, and the killer apps are proceeding without reference to it.

You could argue that there's an element of lowest common denominator computing to the $100 platform that Java is currently benefiting from, and indeed if we are talking about Java in general, that is precisely what Microsoft argues. Nvidia rolls its eyes at the suggestion that Java is a viable games environment once there are mass-market alternatives, and we can surely expect that, although it currently provides 'good enough computing' to deliver the applications the market currently wants, Java will tend to be knocked out of the picture in areas where performance is critical. It is however set fair to become the incumbent, and it's a lot easier to increase the power and capabilities of a platform at a price that the market already accepts (as is the case with the PC market) than it is to get that price to double. (But maybe it's not entirely impossible - in 1982 this writer's first computer cost £129.95, new, just launched.)

One more set of stats to round this off. According to Strategy Analytics, Nokia led the global handset market in 2003 with 34.8 per cent, 'others' next with 20.9 per cent, then Motorola (14.5 per cent), Samsung (10.8 per cent), Siemens (8.4 per cent), then LG and Sony-Ericsson level with 5.3 per cent apiece. You'd expect Nokia's share to ease off due to a combination of backlash, growth in the 'others' market, the consumer electronics giants getting more dangerous and Sony getting the Sony-Ericsson act together better, but we should take something else on board here. None of these, including the one that might shortly end up owning more than half of Symbian, gets a significant amount of its market share from what is currently being defined as smartphones, and none of these (we feel sure) cares.

They care about getting a living margin on large volumes of phones with their names on them, is all. Consumers too care about the badge on the phone, not about the OS - the brand is the asset, the OS is not the brand. Which is actually how the consumer electronics market works, and how the phone market worked before Symbian and Microsoft arrived. So, we feel two predictions coming on. First, in a couple of years time it will become generally apparent that the notion of smartphone as a category is as absurd as multimedia turned out to be. Second, if the Symbian shareholders haven't figured it out already (and we begin to suspect Motorola has), then they will shortly conclude that Symbian was a 'stop Microsoft' play which has now worked, and which has therefore outlived its usefulness, barring substantial re-engineering and repositioning. You could always send it off into the PDA successor niche, where Microsoft hasn't been stopped yet, but Nokia's pitching Series 90 there. And as yet, Series 90 seems to be something it doesn't want to licence. ®

* With luck, we'll get back to Schmitt on what's hot and the deplorable state of VC in Europe later in the week. As teasers there's the $1 fingerprint sensor for consumer devices, the $5 autofocus cameraphone lens with no moving parts (coming in an LG phone RSN), and something so weird we wondered what we'd been smoking when we checked our notes. We did however get the impression that he wanted us to put out an appeal: "We want very early stage startups to come to us." To him, that is. Come to us and we'll just tell you we've spent all our money on beer and stupid tech toys.

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