In 1984, US computer manufacturer Apple spent almost USD 1.5 million on a lavish, Ridley Scott-directed commercial for its new Macintosh 128k personal computer. A year later, Microsoft released Microsoft Windows for IBM PC, signaling the start of the battle for domination of the personal computer market which has waged ever since.
Almost 25 years on, a new contest between technological superpowers is taking shape – only this time the platform is not personal computers, but mobile phones.
As mobile technology develops and people demand more and more information on the move, the battle is now on to determine which operating system (OS) will come to dominate the booming mobile market.
And nowhere on earth will the battle for mobile dominance be bloodier than China, the world’s largest mobile market by number of consumers. The world’s biggest developers have descended on China in a bid to persuade its 600 million-plus mobile phone users to adopt their operating system. The prize on offer is domination of not just the massive China market, but, in all likelihood, a model which will be rolled out across all developing economies worldwide.
MEET THE CHALLENGERS
Microsoft and Apple are once again prominent contenders, but they are far from alone. There are currently more than 40 different companies developing part, or all, of an overall mobile OS.
The support of phone producers and service providers is, of course, crucial, and this is where the picture gets complicated. In 2005, Google acquired mobile OS provider Android for an undisclosed amount. Nokia, the world’s largest cellphone maker, paid USD 412 million for full control of Symbian, at present the world’s leading mobile OS provider, in June of this year. Both Microsoft and Apple have decided to go down the in-house route, the former developing its own Windows Mobile platform; the latter its mobile OS X system which is the interface used to operate its hugely successful iPhone.
Both Apple and Microsoft have remained true to their original business models, even in this new medium. Microsoft’s Windows Mobile has been liberally licensed to many companies, including Motorola, Samsung, LG, HTC, and several domestic Chinese producers, such as Bird (宁波波导), and Amoi (夏新). Microsoft has a team of developers at its Redmond, Washington, headquarters working on different applications, and the familiarity which most developers already have with Windows means that developing applications is relatively easy for Windows Mobile. The Apple OS is a mobile version of Apple’s OS X, and Apple is also keen to help developers create programs for the platform. Apple is even going as far as selling programs on their iTunes system to allow for easier distribution and payment of programs.
Of the leading contenders, Symbian is perhaps the only one not to bring with it any baggage from previous business ventures. Founded in 1998 by a coalition of leading mobile phone manufacturers, most notably Nokia, Symbian develops software and a basic operating system, which it licenses to prominent handset manufacturers including Nokia, Motorola, and Samsung. What it does not offer is a user interface (UI).
Billy Huang, marketing communications manager at Symbian China, believes this is a big advantage. “[Symbian] allows our licensees to leverage the open, scalable Symbian platform to drive smartphone trends,” he says. “In this way, our customers can tell us which services are in demand and we can focus on developing the OS in this direction.”
Some other players in China include Palm OS, which has seen a steady decline in its market share over the past few years, and the open source, Linux-based Mobile Linux, with Motorola representing 70% of the Linux-based mobile market in China.
Perhaps the most promising new contender has yet to announce plans to release a phone in China. Google unveiled the first Android-based phone on the T-Mobile network in the US on September 23. A push into the Chinese market in the near future appears inevitable.
CHINA-SCALE PLANS
Part of the secret of Microsoft’s successful domination of the PC market has been scale. Once Microsoft Windows established itself as the market leader, it became the OS on which most developers wanted to place their software in order to reach the largest market. This is why the stakes are so high. If the realities of the PC experience remain true, whichever company can establish a market lead will have the momentum to provide more and more software, and therefore a more diverse user experience.
It is therefore little wonder that the major mobile OS contenders are focusing such a large amount of attention on China. All leading OS operators are extremely active in the Chinese market, attempting to anticipate the wants and needs of China’s 600 million-plus mobile users.
Already, Chinese consumers have developed their own mobile tastes, most notably their preference for SMS text-messaging services over voice calls. China is the world’s largest SMS market and this leads content and service providers to wonder which other specialized mobile services might pique Chinese consumers’ interest. Most are agreed that social networking is likely to play an ever-more important role in Chinese mobile user behavior.
“[Social networking] is human nature,” says Liu Weihan, Microsoft’s product manager in China, “and in China, which has a history of strong clan ties, social networking is a priority.” Symbian’s Huang adds that location-based services also tie in to the functionality of these applications. “Say you are in the Zhongguancun area [of Beijing] getting coffee with some friends, you can use mobile social networks to list your status to some or all of your friends, so that anyone in the area can join,” he said
SYMBIAN SUCCESS
Symbian, at present, appears to be doing the best job in China, enjoying a 68% share of the smartphone market during the first quarter of 2008, according to Huang. The company formally set up a representative office in China in 2007, and inaugurated a research and development center in August of that year. It has also set up developer outreach and partnership programs with universities across China, notably the Beijing Aeronautics University, where Symbian offers a short summer course in its software, which it makes available to students and non-students alike. Symbian then takes an active role in marketing the applications developed for their software by course attendees.
While Symbian and Microsoft are often cast as direct competitors, Symbian’s business-to-business model, and Microsoft’s greater reliance on its own brand name and familiar UI to help lesser-known phone manufacturers, means that the two are not necessarily eating into each other’s markets. Apple on the other hand, is directly threatening both.
The US tech giant recently struck a deal with China Mobile (中国移动), which will begin distributing the iPhone on the Chinese mainland later this year, though upwards of a million handsets are already believed to be in use in the country. The success of other Apple products, most notably its iPod range of MP3 players, means that it is likely to be a strong challenger to both Symbian and Microsoft when the iPhone launches.
MOUNTAIN BANDIT AMBUSH
Attention has so far been focused on the high-end smartphone market. However, with many of these handsets costing more than a month’s wages for the average Chinese worker, this is, for the moment at least, likely to be little more than a niche market.
According to Microsoft’s Liu, the eventual victor in the OS battle is likely to be the developer that can most successfully cater not only to wealthy smartphone users, but to mid-range users as well.
“There are two or maybe three tiers in the Chinese cell phone market,” he explains. “The top tier is similar to the top tiers in [the rest of] Asia, while the lowest tier drives growth but may not necessarily be buying smartphones. The interesting thing, however, is what could be called the middle-tier, which accounts for 20% of the market.”
At present, there are dozens of mid-range, domestically-made smartphones on the Chinese market. These phones, known locally as shanzhaiji, or “mountain bandit phones,” are unlicensed, and therefore cheaper than those sold by international giants such as Motorola and Nokia. Many bear more than a passing resemblance to more expensive models, and have names such as “Nckia” and “Scny.”
While it is cheaper for most shanzhaiji manufacturers to develop their own, less sophisticated operating systems, some OS providers have concluded deals with higher-end shanzhaiji makers. Microsoft, in particular, has had some success in this area, providing a Windows Mobile OS for a number of phones, including the unassumingly named T32, which is strikingly similar to the iPhone.
It would be a mistake, though, to write off these shanzhaiji makers as little more than glorified counterfeiters. K-Touch (天语), a shanzhaiji brand, a few years ago reached the top spot in the domestic phone market, beating out Amoi, Bird, and even Lenovo’s (联想) handset division. It sold 17 million handsets last year and earlier this year received RMB 530 million (USD 77 million) in investment capital from US private equity firm Warburg Pincus.
The success of companies like K-Touch shows that demand for cheaper smartphones is rising even faster than domestic incomes. “In China the phone is a status thing” says Liu. Huang confirms that it is in companies’ interest to get lower-end smartphones down to around RMB 1,000 (USD 146) in order to be able to eat into this market share.
THE PRIZE ON OFFER
Whichever OS provider can most successfully tap in to the mid-range sector is likely to secure dominance of the Chinese market. This should then, in theory, give that provider revenue streams with which to aggressively target other regions.
In addition, an OS capable of efficiently providing services to all of China’s vastly different internal markets would be well-suited to operate in both developed and developing markets all over the world.
However, like much in the high-tech economy, in reality it is not clear where these revenue streams will come from. Liu admits that, given the way the market is developing, operating systems may in fact not prove to be as lucrative a platform as providers are hoping for.
“If you want to know what the future of the mobile OS is in China, look at Japan,” he says. “In Japan, applications are all online and so the browser can be considered more important than the actual OS.”
Nevertheless, despite these concerns over how, and if, OS providers will be able to see returns on their initial outlays, all appear committed to continued heavy investment in the China market. Whichever is best able to recoup those costs will have a definitive advantage in the coming global mobile wars.
[Published on China International Business Magazine]