Friday, March 13, 2009

Apple Smartphone Ranking Declines

News Analysis. In a stinging setback, Windows Mobile pushes iPhone OS back to fourth place for sales of smartphone operating systems.

Apple made phenomenal year-over-year sales gains, but sequentially iPhone sales declined, ceding third place to Windows Mobile. The change is more a blow to Apple's corporate ego than to iPhone's future success. Sales growth was strong for the fourth quarter and the year. Apple's smartphone held firm its third-place ranking for unit shipments. But Windows Mobile did better because of a fourth-quarter sales surge. As I look into my crystal ball, Apple has little worry from Microsoft. But worrisome competitors are lining up, and one is dangerously unexpected.

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Android is going to be Apple's big competitive problem in 2009 and 2010, particularly as Windows Mobile licensees flee for something better. Windows Mobile 6.5 is expected to ship on some handsets starting in the second half of the year. The software is a dismally discouraging upgrade to Windows 6.1, and both operating systems fall way behind the Web experience available on Android, BlackBerry OS, iPhone OS and Symbian. HTC and Samsung, both longtime Windows Mobile licensees, are looking at Android or Symbian.


Android's impact already has started. For 2008, Linux OS sales declined 4.2 percent year over year, but surged 19.4 percent in the fourth quarter. Android accounted for 20 percent of mobile Linux sales in the fourth quarter, according to Gartner. By my math, that works out to nearly 639,000 Android-based phones from single carrier T-Mobile in the fourth quarter. For the year, Linux nearly snatched fourth place from iPhone OS. Only 154,600 units separated Linux from iPhone OS. Handset manufacturers are lining up for Android, setting up potentially fearsome competition with iPhone OS later in the year.

Elsewhere, RIM opened further its smartphone lead over Apple. Between the third and fourth quarter, iPhone sales dropped from about 4.7 million units to 4 million. Sequential BlackBerry sales rose from 5.8 million units to 7.4 million. BlackBerry benefits from reach in the strong U.S. smartphone market. All major U.S. carriers sell BlackBerrys, but only one, AT&T, carries iPhone. In 2008, U.S. smartphone sales rose 69 percent year over year, with the handsets accounting for a whopping 20 percent of all cell phone sales. By comparison, worldwide, smartphones accounted for 11 percent of all cell phone sales in the fourth quarter and 12 percent for the year.


Quick by the numbers review: Worldwide smartphones sales increased 3.7 percent year over year in the fourth quarter, for 38.1 million units sold. For the year, smartphone sales rose 13.9 percent, for sales of 139.3 million units. For perspective, sales for all cell phones were 314.7 million units in the fourth quarter and 1.22 billion units for all of 2008.

Considering that Apple has only been selling smartphones for about 20 months, iPhone is doing surprisingly well for device and operating system market share. Here's a strange twist: iPhone's success is a major reason for Windows Mobile's fourth-quarter sales gains. For years, Microsoft, RIM and Palm pushed smartphones with limited success. It was iPhone that got the category really going, whether or not Apple was a major beneficiary of sales. Nearly all major handset manufacturers set out to create a smarter smartphone than Apple's handset.


Competition reached a crescendo in the third and fourth quarters of 2008, with Google's Android coming to market from T-Mobile, iPhone 3G recording record sales and BlackBerry getting a boost from exciting new models and, more importantly, admitted CrackBerry Barack Obama. HTC and Samsung had few operating system options other than Symbian or Windows Mobile. Both manufacturers released new Windows Mobile devices in time for the holidays. Samsung's Omnia smartphone contributed to Windows Mobile's sales surge, 16 percent quarter on quarter, according to Gartner.

Microsoft has otherwise fallen too far behind to catch up in 2009, which pits Apple against Google, RIM and Nokia. Apple's options by competitor:

  • Nokia is rapidly losing smartphone market share but still dwarfs second-place RIM. The touch-screen N97 smartphone will help Nokia push back competitors, particularly iPhone and some newer HTC and Samsung handsets. But Nokia has share to lose; Apple should continue extending new carrier relationships and work with developers to assure App Store's success.
  • RIM is a young Terminator. Apple can't catch RIM, as long as iPhone is locked to one U.S. carrier. The U.S. smartphone market is the largest of any region, where BlackBerry is everywhere. Apple's best strategy is expansion into international markets, where smartphones sales are still small and so brand allegiances are mutable.
  • Google is closest to an Apple/Microsoft hybrid. Google's software, services and prototype handset are closest in character to iPhone, but Android and Android Marketplace can be made available to most any smartphone manufacturer. Apple must work the developers, offering them every incentive (starting with lots of free marketing) to develop for App Store and make iPhone available through more carriers in more countries.

"In 2009, mobile platforms will be a major battleground as the associated user experience and role of the ecosystem grow in importance," Roberta Cozza, Gartner research director, said in a statement.


She's right. Apple's key platform and ecosystem early advantage is App Store. Google, Microsoft, Nokia and RIM are watching Apple's iPhone platform strategy and trying to imitate it.

My prediction: 2009 will make or break iPhone. Either the platform reaches escape velocity or Earth's gravity pulls the smartphone into low orbit. If gravity prevails, iPhone's success will continue, but more like the Mac today. If iPhone achieves escape velocity, the smartphone will likely replace the PC as the most personal computing platform used by most people.

In closing, an admission of fault. I was wrong in arguing with Apple Watch commenters about Microsoft Windows Mobile claims that I called bogus. Gartner's numbers show Microsoft CEO Steve Ballmer to be right and me to have been wrong. There, I ate crow—and it tastes terrible.


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