The news this week that Apple commands the vast majority of profits in the smartphone ecosystem should not come as a surprise to anyone following Cupertino. Its financial power allows Apple to invest heavily in new technology and services. Most Android manufacturers do not have equivalent power and are left to use off-the-shelf solutions, reference designs, and a race to the bottom in terms of pricing. Where will the next smartphone advances come from?
Thankfully Apple is not the only manufacturer that has revenue streams coming in that can support the required R&D levels to push a smartphone design to flagship levels.
Google's support of Android as an operating system has been critical in growing the ecosystem. Developed and augmented over many years, Google continues to invest in the software to keep it at the forefront of technology. Offered in principle for free to anyone (but the use of Google services and applications does require a fee) manufacturers get an operating system that is mostly ready to roll.
The trade-off for manufacturers is the uniformity that Android demands, the ease of consumers switching to another manufacturer, and the power handed to Google in terms of customer relationships. In the first decade of the 21st century it might have been possible to go it alone with a new mobile operating system, but as the likes of Microsoft and BlackBerry have shown, the moment has passed.
Most advances today are seen in hardware. Apple's continued improvements of the silicon, tied tightly to the operating system, offers 'best in class' levels of integration, but hardware changes also include screen technology, NFC, material science, design, and battery construction, to name a few areas. These all require long-term and substantive investments to be made, and there's no promise that they will show up in hardware. Apple's high levels of reserves and revenue streams mean it can afford these investments. The likes of HTC, LG, and BlackBerry have less to invest in R&D. Couple that with the everyman feel of Android OS and is it any wonder that Android sometimes struggles with its public image?
This is why the Pixel and Pixel XL smartphones from Google make for an interesting intervention.
HTC might be putting the components together, but Google is the financial power behind the hardware. While it might not have the smartphone revenue that Apple has, it does have similar financial power in other areas that can be leveraged to back the Pixel and Pixel XL smartphones. Google has an advantage that few smartphone manufacturers have, and that is why Apple should be wary of the Mountain View team.
Microsoft has chosen to turn away from that path. There will be a lot to like about the presumptively titled Surface Phone, and it will be a notable handset, but it is unlikely to be a mainstream success selling thirty million handsets a month. Microsoft's path is cloud first, with mobile supporting it. That could be Windows 10 on mobile, but it is equally Microsoft apps and services on iOS or Android.
This is why I think Cnet's assumption that Facebook is working on a mobile project is just as interesting as the Pixel. Like Apple and Google, it has the financial muscle to commit to a smartphone. While it might be little more Skunkworks than the Pixel and far less mainstream than the iPhone, Mark Zuckerberg has one of the few companies that could make a genuine difference to the mainstream view of smartphones. And with a commitment to connecting the world, a Facebook smartphone in BRIC countries might be the last chance for a new player to stake a significant claim.
Each new handset release is a short-term battle in the smartphone ecosystem. There will be individual winners and losers in each round, but when you step back you can see the larger conflict. In the fight to dominate the intellectual resources of the smartphone ecosystem, Apple is slowly eliminating the competition. One major challenger remains, another hovers in the wing, and a third has decided to focus on the cloud. How long till only one of the combatants is left standing on top of a mountain of smartphones?
Now read how Google is forcing the iPhone to challenge the Pixel...
