Who will dominate the smartphone business?

Generator Research's recent report floated the idea that Apple will dominate the smartphone business with the iPhone. Generator makes some valid points in its argument, but it's still a stretch to make such a prediction.

Nokia is currently the world leader with 40 percent of the market, with the iPhone accounting for five percent. Granted however, to achieve even five percent in the relatively short time the iPhone has been around is pretty impressive. And Nokia may well be shooting itself in the foot if it follows through with a $700 N97 device designed to compete against the iPhone. Competing against the iPhone is of course a wise strategy for any smartphone maker, and more vendors are doing just that. But they should have already learned from Apple that consumers will react negatively to such a steep price tag. Even Apple, whose corporate mission seems to be to charge more than everybody else, had to lower the price eventually.

Nokia's N97 notwithstanding, the general trend in smartphones is going to be more features and lower cost. This mirrors the trend of the computer industry and roughly follows the spirit of Moore's Law--which holds that over time computing power increases and relative cost decreases. Apple will stay on the high end of the price spectrum in smartphones, as it does with computers, but there will be more and more competitors. Ordinary cell phones will take on more characteristics of smartphones, to the point where there will eventually be a sort of "middle path": That is, every mobile phone will become a smartphone. The differentiation will no longer be to have either an ordinary cell phone or a smartphone, the differentiation will be in the degree of smartness.

There are two factors that will keep Apple from dominating the market with the iPhone, and in fact will keep just about anybody from dominating the market, for that matter. The first is the Google game-changer, the Android reference platform, and the impact from that is only just now beginning to be seen. The second is opening up of spectrum. During the recent FCC spectrum auction, Verizon had to agree to FCC terms to open up the spectrum it acquired at such a high price tag, and this may well be the beginning of the end of the marriage between carrier and hardware. Without the "lock-in" that forces buyers of particular phones to use certain carriers, it's anybody's game.

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