I bought a smartphone a little under six months ago, and as someone who follows the handset market fairly regularly, I can declare with confidence that it has already been completely outclassed in the market by newer, faster models.
Two announcements this week help crystallize this rapid pace of innovation.
First, Nokia (NYSE: NOK) announced it will delay the launch of its Symbian^3 platform to the third quarter to make sure quality and user experience are up to its standards. Further, the company also said it is pushing back Symbian^4 until next year; that upgrade is, according to Symbian's Tim Holbrow, going to be a major redesign of the operating system.
Second, Research In Motion (NASDAQ: RIMM) unveiled its own platform upgrade, BlackBerry OS 6, at is Wireless Enterprise Symposium event. The upgrade, which will be available beginning in the third quarter, includes a new WebKit-based browser, customizable homescreen and a more touch-friendly user interface--all of which are long overdue.
Both of these announcements are emblematic of the kinds of challenges facing entrenched handset powerhouses in a rapidly evolving smartphone landscape.
Symbian^4 is supposed to be Nokia's smartphone ace, but that's now been put off. Symbian^3, meanwhile, boasts acceleration for 2D and 3D graphics in games and applications, HDMI support, music store integration, improved navigation and multitouch gesture support--all welcome and necessary, but essentially table stakes at this point. While Nokia perfects Symbian^3, it is being passed by Apple, HTC and other smartphone makers that are already perfecting what Nokia is envisioning.
Meantime, RIM is busy transitioning to a more consumer-focused business, and has rightly recognized that it needs an upgraded browser and more fluid user interface to compete with Android, Apple (NASDAQ: AAPL) and Microsoft's forthcoming Windows Phone 7. But again, I get the sense that RIM has arrived late to the party with its upgrades. As Gartner analyst Ken Dulaney points out, RIM is going to have to filter the new OS through its user base if it wants the upgrade to gain widespread acceptance and be seen as the "new" and true BlackBerry platform. The company also will have to figure out how to create more consumer-friendly applications and generate excitement among developers, while also still delivering solid hardware. Clearly, that's all easier said than done.
"Part of the dilemma for the big and established guys is exactly that," said CCS Insight analyst John Jackson. "They're big and established." It's hard to shift entrenched market positions because it's time and resource intensive, he said.
This is not to say that smaller players that are also innovating in smartphones are having an easier time. Dulaney said that OEMs such as Motorola (NASDAQ: MOT) and Sony Ericsson are customizing Android, which can be effective, but also brings risks. "And if you're not inherently proven as a software developer, odds are you're not going to do that well," he said.
The bottom line is that the real threat to major OEMs that are trying to innovate in smartphones comes from companies such as Dell and Acer--firms rushing headlong into smartphone development. "You have a set of market conditions that are ripe for exploitation by companies like Dell who don't have a legacy business they and their shareholders rely on quarter to quarter," Jackson said. Such players are well-capitalized and can leverage their manufacturing resources, free of the obligation to ship volumes and attain high margins in order to survive.
So far, the market impact of these small players has been negligible. Nokia is still the worldwide leader in smartphones, thanks to Symbian's reach. Apple's iPhone juggernaut continues to chug along. RIM is still the smartphone king in North America.
Yet with each passing quarter and year, the pressure will mount on established players to increase their pace of innovation. As the leaks of Dell's Android and Windows Phone plans show, the company means business. These new players are poised to upend the traditional market, or at the least make life difficult for the big OEMs.
The shakeout is coming. Maybe not this year or even next year, but the major handset players need to be ready for it. --Phil