Companies are starting to fall by the wayside as the stacked teams of Apple, Google, and soon Microsoft take firm control of the race.
Lets look at a checklist of capabilities one needs to launch a competitive mobile OS. Half way down this list you will realize that very few companies have assembled a deep and wide enough talent pool to execute a smartphone mobile os on a global scale.

[1] Limited Network Effects: During the PC war application developers propelled Windows PC to its monopoly position – users adopted the OS with the widest range of applications and developers adopted the platform with the most users. In the mobile smartphone OS war the top 20,000 apps that matter will be replicated to the top five mobile os platforms in each market or region muting the possible network effects because the development costs are relatively low.

• 140 million DVD units per year [source]
• 360 million PCs (laptops, netbooks, tablets) units per year [source]
• 100 million videogame consoles units per year [source]
• 1.3 billion mobile phone units per year [source]

Mobile phones sell more than all of those – combined.  The two largest handset manufacturers Nokia and Samsung shipped 175M mobile phones (mostly feature phones) in Q1 of 2010.  That is more than 3x the total global PC shipments for Q1 2010.

The smartphone market of today is not what Google, Apple, Microsoft, HP, and Nokia are fighting for.   Today’s smartphone market is measured in tens of millions of devices per quarter across all the major players and by 2011 there will be 449M smartphone users (i.e. active subscribers).  The smartphone market of three to four years will be measured in hundreds of millions of smartphone devices per quarter.

Let’s be clear why Microsoft is not too late to this game:

• Massive market.  An early lead of 60M devices in a 1.3B/yr shipped devices is not much a of a lead.
• Device churn: People churn through phones rapidly (PC turnover is ~4 yrs and phones is ~18 months)
• Weak lock-In:  Users are not spending hundreds or thousands of dollars on content (music, apps).
• Weak network effects:  Given low cost of developing apps, the important ones are being replicated to the top tier platforms.
• Carriers want Microsoft: They don’t want a Google and Android dominated market.  They want at least four major platforms each with 25% of the market, and believe Microsoft has the patience (i.e. warchest) and persistence to be one of them.

Full Disclosure:  I don’t work at Microsoft and I don’t own any Microsoft shares.  I simply believe the Android vs. iPhone conversation is myopic and ignores how insignificant of a lead both of them have established.

• Travel: Acquired ITA Software which aggregates flight routes and pricing information and enables advanced search capabilities on travel data.
• Local: Attempted to purchase Yelp.com, and after that fell through they ramped investment to build their own local data set.  Additionally,  Google has been investing for years in map with StreetView and satellite imagery.
• Metaweb (Freebase): Structured data of  people, places, and things.

When Google focuses on a category like local this is what happens to the search experience.  For a query like Delfina Pizzeria (an excellent pizza place in San Franciso) rather than linking to the best sources of information like Yelp, Zagat, SF Chronicle, etc. Google first pushes you towards Google Places. It currently includes a mix of their own content and other sources of licensed content.  What happens when they have their own pictures, reviews, and check-in data — do they really need to license all this other content from the likes of  Zagat and SF Chronicle.

I expect Google to complete the buying binge by acquiring companies with rich data sets across other highly monetizable categories:

• Shopping: Amazon and eBay to a lesser extent are capturing significant percent of query share in a very lucrative area.  If users bypass Google and go directly to Amazon for their product queries this represents a serious threat to their business.  They need to acquire a company with a huge selection of product data — rich and structured product attribute (size, color), inventory availability, pricing and promotions, and user reviews.  I can’t think of one company (beyond Amazon) that has done this well at the scale Google would need.  This may require acquiring multiple companies to create this.
• Real-Estate: Is somebody like Trulia next?

• New Magic trackpad  – this  is very cool as it brings full multi-touch to the desktop (review here)
• 27 Inch LED Display (review here)
• Upgrades to iMac line (review here)

A pretty significant product launch.  So, you would think with Apple passing on a big Steve Jobs press event at the very least they would swap the Apple.com homepage to promote the new products.  Not a chance.  They are laser focused on the iPhone.

Fragmented User Experiences

Each Android device OEM (HTC, Motorala, Samsung, etc.) has created their own user experience layer on top of the out-of-the-box Android UI.  None of them have done a particularly good job.  Beyond the poor execution these fragmented user experiences create two problems for Android.  First, it creates a learning curve as user upgrade their devices. Users abhor relearning basic functions (ever wonder why Mapquest still has significant traffic in the face of far superior products).  If you are running the HTC Sense UI for Android and one day consider upgrading to a Motorola device running Motoblur these UI differences will appear daunting.  HTC is perfectly fine with this kind of reaction as they are trying to build lock-in to HTC devices.  But what happens when the user says to themselves well as long as I will need to relearn a user experience why don’t I try an iPhone or Windows Phone.  The second and perhaps more serious risk to Google from these fragmented user experience is the user never carves away a piece of their mind for Android.  To the consumer Android means ten different things based upon what kind of marketing the carrier did for the device, which UI layer you were running.  In fact many people have no idea that they are even running Android as there is nothing unique about the user experience that says I am running Android.

Google sees this as a serious liability and future versions of Android are focused almost exclusively on improving the out of the box user experience to avoid this experience fragmentation.

Bloatware

Yes, everybody pre-installs applications – even the iPhone.  While the iPhone does pre-install maps, weather, finance.  Carriers selling Android devices are going much further.  They are pre-installing niche products like the Nascar and Football apps – Wired provides the gory details here.  For example, my Droid Incredible from Verizon pre-installs City ID (a zip code lookup application), Footprint (local guides), Teeter (a game).  It is bad enough to pre-install niche apps, they prohibit you from removing these applications.  With that kind of experience it’s not surprising that 80% of Android owners will not buy another one.

Mess of a Marketplace

The Android Marketplace is a living example of a philosophy taken to its extreme with negative consequences. Android believes in a laissez-faire market.  Let all the apps in and allow the use to decide what is best.  The Android narrative goes something like this. Apple is the North Korea of the smartphone market and we (Android) are the open enlightened western country – where would you rather live?   This positioning may work for a small subset of developers but for users who actually simply want to find and install the latest app it is really not so simple.   Jon Lech Johansen’s recent blog post Google’s Mismanagement of the Android Market captures it well:

one should not need a PhD in Computer Science to use a smartphone. How is a consumer supposed to know exactly what the permission “act as an account authenticator” means?

Another example of this mismanagement, try searching for Yahoo in the Android Market. If you don’t have an Android I included a screenshot of what you see.  The first result (as of July 25, 2010) is an app made by a company called Lovemaq.  They stole the Yahoo logo, wrapped a few Yahoo.com web pages into an Android app, layered some ads around the app, and threw it into the Android Market.

Updated July 29, 2010:  Android app that steals your data was downloaded by millions.

The Case for Microsoft

After killing Windows Mobile 6 and the KIN Microsoft finally has their shit together. They are bringing a unique user experience (opens engadget’s recent review) in Windows Phone 7, a history of cultivating and supporting application developers, and strong relationships with both enterprise customer and OEM device manufacturers.  Combine this with a stomach for losing billions of dollars to build scale and the door Android is leaving open Windows Phone 7 will be a serious competitor far faster than most people realize.

Image courtesy of Flickr twenty_questions

First, lets begin with some context on the enterprise software business.  During the golden years (nineties) of enterprise software – companies like Siebel, Peoplesoft, ePhipany and many more brought software from the back-office (order processing and billing) into the hands of sales reps, customer service, marketing, and human resources (commonly referred to as the front-office).  The license based enterprise software revenue model works like this.  They sell $1M worth of software licenses and then charge companies annual maintenance fees (approximately 20% of the original license cost) for patches and incremental versions of the software.   So, a $1M license software deal actually translated into $2M over five years ($200K annual maintenance fees times five years plus the original license deal of $1M.)   Once a customer installs the software they are effectively locked in for many years.  These maintenance revenue streams are highly profitable as they not paying sales commissions and support costs are spread across thousands of customers.

With that context, it’s pretty clear what buyout firms are doing.  Acquire an enterprise software company with a significant customer base, cut new product development, move support to a low-cost labor market, and milk the maintenance revenue stream.

Yes, this is part of the natural product lifecycle – these are companies on their death-bed.   But the unfortunate part of this is that users (customer service agents, payroll admin, and hiring managers) are stuck with barely usable (try using Oracle Applications) and now largely unsupported tools.

Given the improvements in user experience (Apple) and collaboration tools (Facebook, LinkedIn, etc.) over the past five years these older software tools are a massive productivity drain for millions of users.  There needs to be a better and faster way to flush out mostly defunct enterprise systems and migrate users quickly to something usable.  There is hope, companies like Yammer cleverly bypasses traditional IT purchasers and first hooks the people that matter most — the users.

1. Multiple Parallel Deals:  This is another way of saying broad offer selection. With only a deal or two a day per city (~50 or so cities) the activation energy a competitor needs to catch up is fairly small (sales force and some search marketing spend).  If they had more liquidity on the supply side (hundreds of deals per day per city) it would be very hard to create this kind of supply with a sales force.  To do this effectively they need to build a recommendation engine that ensures that I never see a deal for a pedicure.
2. Turn Competitors into Sales Franchises: Local businesses don’t have the time or desire to transact with multiple group buying sites. Furthermore, Groupon’s competitor’s are starting to plateau, as this happens will seek new ways to generate incremental revenues.  Groupon can avoid a bloody fight with these competitors by turning them into a local sales franchise.  They bring deals to Groupon and in return get a cut of any deals sold. Of course, these local sales franchises have to use all the listings and contract management systems Groupon provides.
3. Build Local Business Reviews:   For each deal many hundreds of people experience the service.  If 10% of these wrote a detailed review they could quickly become an excellent source of business reviews.  Today’s Groupon in San Jose is running a deal for Cindy’s Yoga (see here) that 792 people purchased.  If ten percent of purchasers wrote a review (or 79 reviews) Groupon would have 36 more reviews than Yelp’s listing for Cindy’s Yoga (see here).

Adapted from my answer on Quora.  Follow me on Quora here.

Their objective centers around maximizing profit from the complementary product (Draft) rather than the core subscription product, Campfire. This is akin to Bloomberg trying to charge a hefty premium for content — Bloomberg news content is a complementary product to their lucrative subscription Bloomberg Terminal business.

The objective should be to get every Campfire user with an iPad to purchase the Draft app.  Price it low enough to make it a no-brainer decision for these users.  If every Campfire user (with an iPad) purchased the Draft iPad app Campfire would become far more valuable. Campfire users would post more content via Draft and more conversations around the content creates deeper customer lock-in.  As Campfire becomes more valuable customer are less likely to cancel their subscription.  37Signals knows better then anybody else that losing a subscription revenue generating customer is very hard to replace.

Given the amount of controversy this $10 price point is generating the last thing 37Signals needs is Campfire users thinking twice about purchasing the app — at $4 or $5 these types of users don’t think twice.

[See here for an excellent essay on product complements by Joel Spolsky)

1. Limits Google’s Ability to Achieve Mobile Ad Dominance: The mobile ad business is a two-sided network. Apple is ripping away one side of that marketplace (or at least a very large chunk of it — 100M eyeballs).  This will limit AdMob’s (i.e. Google) ability to achieve critical mass in the mobile ad space during these formative growth years.
2. iAd Accelerator: With AdMob out of the picture advertisers will move their mobile ad budgets to other ad networks and clearly  the iAd network will grab some of these dollars accelerating its growth as it attempts to reach critical mass.  Remember, in any market with strong network effects the strong get stronger and the weak get weaker.  Apple is positioning iAd to get stronger.
3. Keeps Ad Innovation Alive (some): A key hallmark of an open system is the increased rate of innovation. By opening iPhone to select mobile ad networks the iOS platform will still benefit from the ad innovation these providers generate.
4. Switching Costs for Developers are Still Low: In a mature market developers could incur significant switching costs i.e. if AdMob had 10x better ad relevancy algorithms combined with an advertiser base 20x the combined competition it would be challenging for the others players to match the revenues developers were generating.  But in such a nascent marketplace nobody has these kinds of advantages.

• • Other mobile ad networks (Apple iAd, Millennial, Greystripe, and Mojiva) will quickly pick up the slack and provide comparable monetization rates.
  • The cost of switching to another ad mobile provider is not significant – a new billing relationship, a couple of lines of code, and new analytic tools to monitor your performance.
  • The vast majority of mobile developers making real money (now) are not doing so with AdMob display ads — they are doing it with paid apps.

Finally, do you really believe that app developers would give up access to 100M mobile users who have a credit card on file.