Is iOS or Android the New Windows?

While within the U.S., the battle for the top spot among smartphone makers is highly driven by the accompanying ecosystems -- making Apple (AAPL -0.81%) and Google (GOOGL 0.69%) disproportionately the top contenders -- this is not the case on a global scale. Using this reality as a backdrop gives us a much richer context in which to consider the assertion recently posed by Steve Milunovich of UBS Securities that iOS "is the New Windows."

He is, of course, referring to the OS that most defines the personal computing space; implicit in this stance is the idea that smartphones and tablets have become more relevant than PCs. Ultimately, while fortunes may shift over the near term based on the dominance or lack thereof of a given platform, this battle will be won by consumers who will have diverse choices and no need to be limited.

The U.S. stage
Within the U.S., there is a veritable duopoly between the two top players. Recent sales data from Kantar Worldpanel ComTech shows that since the release of the iPhone 5, iOS has reclaimed the top market share sales position in terms of quarterly sales over Android by a margin of 48.1% relative to 46.7%. The data showed that 62% of iPhone 5 sales came from existing iPhone users, meaning that 38% are new to Apple, and helping it close the U.S. gap against Android. 

The really telling portion of these figures, however, is that other smartphone sales accounted for only 5.2% of the domestic market. While this duopoly doesn't exist on a global basis, Travis McCourt of Raymond James points out that "[i]n the parts of the world where a smartphone ecosystem matters, it is a much more even match between Android and iOS."

Given the importance of the ecosystem and the availability of apps, Microsoft (MSFT -0.66%) has made a big push to give developers more tools and easier access to portable core code. A recent piece in Wired highlights the issue: "There are more than 120,000 apps in the Windows Phone store and more than 16,000 in the new Windows 8 Store. Those are big numbers, but they look paltry compared to Apple's App Store and Google Play. Microsoft knows it needs more apps." In terms of the battle for mature markets, like the one in the U.S., a fully developed ecosystem remains critical.

To be fair, the Apple-versus-Google battle is so ingrained into most of our psyches at this point that it's easy to write off Microsoft's efforts. While one of the company's biggest challenges will be to get consumers to even consider a Windows phone, it can be done. When Google first entered the smartphone market, a general scoff went out from many who believed that Google could never catch Apple in the apps race. Clearly, new market entrants can be competitive over time.

The global stage
Unlike in the U.S., especially in markets where price is the critical driver, the inclusion of a comprehensive ecosystem is of far less importance. On a global basis, research firm IDC reports  that Android commands a 68.1% market share relative to 16.9% for iOS. As McCourt tells us  "There are parts of the world where a smartphone is simply a touchscreen with an effective Web browser, and in those parts of the world, Android is dominating." The magnitude of the global market is best seen by comparing U.S. and global market share figures; the huge disparity present in the global figures bespeaks the size of the non-U.S. market.

Adding to Apple's non-U.S. woes was the announcement last week that China Mobile (CHL), China's largest wireless carrier, has reached an agreement with Nokia (NOK) to sell the Lumia 920t. The Nokia Windows phone will represent another critical non-iPhone in the enormous Chinese market. Still, by pure volume, low-cost smartphones made by "other" manufacturers  are the largest growing market segment in China. When you consider than while smartphone sales are growing at 46% annually, but by 63% within emerging markets, it is easy to understand why Android is so far outpacing the higher priced iPhone.

Tablets
While a careful analysis of all of this data reveals interesting patterns in spending habits that may translate into near-term stock performance, the underlying theme is that growth is strong across the board and none of these players is struggling. The growth in the tablet market may be even more explosive. A recent survey conducted by UBS revealed that nearly 75% of respondents  reported that they have or will use a tablet in the near term.

Returning to the "New Windows" question, Milunovich argues:  "Apple is gaining as the ratio of total notebooks to iPads plus MacBooks peaked at over 30x in 2006 and is now just 1.6x. Not only could iPad maintain half the tablet market, but MacBooks might steal a significant number of Windows PC users." While Apple certainly enjoys a significant first-mover advantage in tablets, Android has come a long way as well. Heading into the holidays, the significantly lower price of the Google Nexus 7 should give it a distinct advantage.

Microsoft should not be counted out of the tablet race, either. Even Milunovich can accept the potential of the Microsoft Surface: "Since they both are production devices, Windows tablets are more likely to hurt notebook than iPad sales, in our opinion. Offering the full suite of productivity software, Windows tablets are well positioned to grab a corporate niche." Leaving aside the absurdity of calling corporate computing a "niche," the Surface is likely to play an important role in the mix, particularly after the Surface Pro, which will run a full version of Windows, is released early next year.

Putting it in context
As compatibility and portability continue to increase, it's hard to imagine that a single dominant OS will emerge. The global market is simply too vast to allow a single player to command the entire landscape. As things stand, Apple seems to control the tablet market, Google the smartphone market, and Microsoft that little niche known as business. You may well end up as an iPhone user who carries a Microsoft Surface and runs Google Apps without ever thinking twice.

From an investment perspective, all three of these companies are in a solid position to perform moving forward. Down from its $705.07 high, Apple struggles of late are a new long-term buying opportunity. While many have lost faith in the company's ability to innovate, it still makes clean, high-end products that haven't lost their "cool factor" as the must-have device. I believe the stock has limited downside from its current price near $530, and that the risk-reward ratio has become favorable for the medium and longer terms.

For all these reasons and so many others, I believe Google is simply the single strongest name in technology. The company continues to find new ways to innovate, while dominating in almost every business in which it competes. Having risen from a cloud of incredulity that a search firm could compete with the mighty iPhone, Google now owns the global smartphone market.

Microsoft, still in the midst of its attempt to throw off its stodgy image, may be the most interesting play of the three. From the Windows Phone to the Surface tablet to Windows 8, the company is attacking on all fronts and clearly means to not go silently into the night.

Rather than choosing which of the three will win this battle, I would simply buy all three.