Windows Mobile Ecosystem Part II

The June 29th introduction of the iPhone by Apple caused tremendous attention to be placed on the overall smartphone category. It was the hope of many companies, including Microsoft, that the iPhone would help to validate and accelerate adoption of this category of devices that offer far richer feature functionality than the standard cell phone device often given away or subsidized by the Mobile Operator.

It was also hoped that the iPhone would join the burgeoning ranks of other smartphones, including 150 current Windows Mobile devices, which in turn would spur on innovation and put downward pressure on price as the major consumer electronic manufacturers of the world would now have to differentiate their offerings in the marketplace.

Apple's vertically integrated model

While the iPhone's announcement was accompanied by much media fanfare, much of it driven by Apple itself, reviews of the device have, with some notable exceptions, been generally positive. However, one thing is crystal clear: Apple is continuing its long-standing practice of following a vertically integrated hardware/software business model—the "we do it all" approach.

This is the same model that Apple adopted, with great success, for the iPod. And it's the same model they have been using for the past 25 years, with less success, for the computer business. With the release of the iPod and the iPhone, it's no surprise that Apple officially changed its name recently from Apple Computer to Apple, Inc. They want to be viewed as a major consumer electronics provider and not simply a computer provider.

So, how will Apple compete against some of the largest consumer electronics manufacturers in the world? Most of these companies are far larger, have greater resources, established channels of world-wide distribution, years of industrial design experience, more money, and more technical expertise in consumer electronics in general.

It is the opinion of many pundits that at the end of the day, Apple's vertically integrated strategy is fundamentally flawed. It is a strategy that relies on proprietary, rather than consumer off the shelf (COTS) hardware and software. It's also a strategy that supposes Apple will be able to sustain prices such as $599 for an unsubsidized phone and that consumers will be willing to pay a premium for the Apple name. How will Apple be able to cost-justify these extremely high price-points? How will Apple be able to nimbly react and compete when established worldwide manufacturers have them in their cross-hairs?

Microsoft's partner-centric model

As mentioned in the first installment of this series (pocketpcmag.com/_archives/Aug07/ecosystem.aspx), Microsoft has chosen to license the Windows Mobile operating environment in a manner very similar to how they license Windows or Office—by licensing code to 70 different Original Equipment Manufacturers (OEMs) or Original Device Manufacturers (ODMs). The list of current licensees and sellers of Windows Mobile reads like a "Who's Who" of some of the biggest and most well-known brand names in the consumer electronics business. Samsung, Motorola, Sanyo, Toshiba, Palm, HP, Dell, and Audiovox are just a few of the high profile names found on the list. Additionally, because of the standardization of the platform and relatively low licensing costs, the barriers to entry for many smaller OEMs/ODMs have been lowered. Now, relatively newer companies such as HTC— which makes their own brand of devices as well as various branded devices for companies like Palm and Pantech—can become very large forces in this ultra-competitive and price-sensitive market.

Additionally, the Microsoft Windows Mobile OEM/ODM ecosystems enjoy economies of scale and distribution advantages. For instance, a Samsung or HTC device can be bought by anyone, anywhere in the world from multiple sources. In the United States, the largest channel of distribution for handsets has traditionally been mobile operators (MO) like Verizon, AT&T, Sprint, etc. Since the MOs typically subsidize much of the cost of the handset, consumers in the U.S. are spared the high cost of many devices.