The Year of the New Mobile Operating System

2007 could be called the year of the mobile operating system.

Since Microsoft entered the scene around five years ago, the smartphone operating system industry has been fairly stable. Symbian, Linux, Research in Motion and Windows Mobile make up the bulk of smartphone software, each to varying degrees of success in different regions.

But in 2007, Apple introduced the iPhone, which runs its own brand of software, and Google announced that next year its Android mobile operating system platform will come out.

The entrance of two new operating systems from well-known brands shakes up the plans of some mobile operators, creates some headaches for end users, presents bigger challenges for application developers and indicates some fundamental changes in the mobile industry.

To put the discussion in perspective, realize that smartphones make up a relatively small portion of overall mobile phone sales. In 2006, 8 percent of phones sold were smartphones, said Chris Hazelton, an analyst with IDC. That's set to grow in 2007, but will likely only hit the low double digits, he said.

Why all the interest then? The industry has high hopes that existing phone owners, who now make up a large part of the overall population in developed countries, will want to move on to the next generation of more capable smartphones.

In addition, operators are gradually indicating that they're stepping aside from their role as gatekeeper and will allow more outside companies to offer phones and services to their customers, opening up new opportunities for software, hardware and Web services companies.

Verizon and AT&T have recently made bold statements indicating that they're opening up their networks to more devices. While end users might have the option to use a wider variety of devices, Verizon's announcement at least comes with a catch. "It's like, 'OK, we'll bow to what you want, but be careful what you wish for. You can bring these phones to our network, but if you have problems, don't call us'," said Hazelton. Verizon hasn't promised technical support for handsets that run on its network as part of its new open program.

Still, at the very least mobile customers in general will soon be able to add the iPhone and new Android phones to the list of handsets they can choose from. That's good and bad for phone customers. "End users will probably need to do a bunch more homework," said Scott Horn, general manager of Microsoft's mobile communications business. That's because they'll need to figure out if the new software can support the features and services they want.

At the same time that operators are opening up to new handsets, they're also beginning to ease restrictions on which online services customers can use. The trend started in Europe, where operators like Vodafone have said that the bulk of their online data revenue came from services offered by third parties outside of its portal. Operators also learned how difficult it is to build a portal of desirable services. "It's an incredibly resource intensive and expensive undertaking," Horn said. The shift away from the walled garden is just starting in the U.S., he said.

Allowing easier access to Web services is relevant to the software on the phones. Microsoft says that some handset makers and operators are interested in Windows Mobile because of its support of popular Microsoft services like Live IM and Hotmail for mobile users. Google has a whole host of services that it targets at mobile users, from which it hopes to earn advertising dollars. And Apple has cleverly linked the use of the iPhone and its software with iTunes, where customers can buy content.

All of these changes represent a major challenge for many operators. Some operators have in the last year or so said they want to support just a couple of operating systems as a way to cut costs related to support and training, Hazelton said. "I think carriers are kind of backing down on the demand that there be fewer platforms," he said, as a result of the new software hitting the market.

The additional operating systems might also pose a problem for application developers. "It will be hard for application developers to pick," Hazelton said. Developers don't always focus on just one platform, but there will be so many operating systems in the mobile space that it will be difficult for them to choose which will be the most popular. For now in the U.S., BlackBerry and Windows Mobile have the largest developer base and that should continue in the foreseeable future, he said.

But the new operating systems should also serve to grow the number of developers, Horn said. Developers will continue to have to make bets about which platform will pay off. "That's always been the case. Developers say, 'where's the biggest market for my talents and which market has the lowest cost to enter.' In many ways, it's an economically driven decision for developers," Horn said.

The experts agree that the new operating systems don't pose a threat to any particular existing platform provider. "The more entrants in the near term means faster growth in the category, driving us all up collectively," Horn said. "There will be big players and there will be niche players, we'll see different business models."

Hazelton agreed. "There's more a benefit than a threat because it serves to broaden awareness of smartphones," he said.

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