Last week I was invited to speak in London in front of a group of investment managers who specialize on tech stock, and the predominant question in the room was whether there was a chance for Nokia and Microsoft to establish a viable third app ecosystem.
Of course, the mobile OS battles have been waging for some 4 years now, ever since the iphone disrupted the mobile industry and Android emerged as the savior for everyone who wasn’t Apple and not arrogant like RIM (BBOS), Nokia (Symbian), and Palm (WebOS) to think they could go it alone. In 2008 I wrote a case study with Robert Burgelman of Stanford GSB about the just launched Android to examine whether it will shake up the industry as much as the iphone and beyond. Today we all know the answer.
In 2010 I spoke to a similar group in London and predicted, based on our analysis, that Android would be a winner and that Nokia and RIM would be the biggest loosers. Not everyone acted immediately, but the markets soon shaved off about 80% of the market cap of these companies. So this time around, the audience was even more captive when I shared my thinking of the forces driving the tech industry, specifically examining:
- is the industry structure vertical (like Apple or the early computing industry of the Wangs) or horizontal (like Google sees it or the PC industry of Wintel) — you cannot compete against the industry structure unless you confine yourself to a niche (a theory developed by Andy Grove and Robert Burgelman)
- what is the role of app developers and what do they look for (I will publish a separate article about this) — the app developers are the most pivotal group to win over to establish an OS
The gist of it was that Nokia/Microsoft would be able to establish a third alternative, but only with massively negative margins due to subsidies and promotions paid by Nokia, Microsoft and the operators. Also that 3rd ecosystem will at best get ~10% of market share vs Android and iphone’s 50% and 30%, and will always be a laggard in getting the latest cool apps (which may be good enough for some consumers). Some properties like XBox will help to attract niche audiences.
So we will see one or more sequels in this epic war movie, but while we’re fascinated observing these fights we may overlook the really big disruption that will make all of this meaningless: HTML5.
HTML5 brings the Internet architecture to mobile and is today, at least for a certain class of apps equal (Financial Times, Economist) or superior (Facebook) to their respective native apps (certainly inferior or impossible to be used for sophisticated mobile games). But net-net, in the eyes of the consumers, the switch to HTML5 is often indifferent.
So the pivotal question is whether it would be beneficial to the app developers to switch to HTML5. I will explain this in more detail in a future post, but the short of it is: “massively, yes”. Just consider that Facebook, which hosts 1 in 7 Internet visits, already HAS made the switch, and that the Financial Times even went so far to acquire its HTML5 developer shop. Despite some limitations and the adoption risks of a new technology, developers are making the switch today.
Therefore my prediction about the mobile OS wars was extended that by the time we schedule the showdown battle, it doesn’t matter any more, because HTML5 goes over the top of any OS or their respective app stores, changing the control points massively.
So like in the PC OS battles, in the end the Internet standard will become the free-for-all equalizer which constrains the power of the native OS owners.
Bill Gates could write another "Internet Tidal Wave" Memo, Apple and HTC should be frightened, while handset manufacturers who can deliver on scale (Nokia, Samsung, Mediatek) are, in principle, stand to benefit as well as operators, while having lost their walled gardens, at least they’re not slaves of Apple’s or Google’s walled garden any more.
So maybe it’s time to buy Nokia stock? Well, that would require that they can really engineer another turnaround. There is not much precedence of tech companies coming back from the dead. Except Apple under Steve Jobs.