Software Holds the Key to Mobility's Future
By Niall McKay in Silicon Valley, Mon Jan 27 09:30:00 GMT 2003

Everybody agrees. The future of the wireless industry is a box. But there the agreement ends.


To the consumer electronics industry the future looks like a game, to the computer industry it looks like a computer, and to the mobile phone industry, predictably enough, it looks like a phone. But it looks like an incredibly big market to everybody. That means lots of loot in what is becoming an increasingly cash starved business environment.

In contrast, one could say the cellular and digital device industries are still booming - although not everybody is making money. Over 400 million cell phones are sold each year and there is an ever widening and deepening of the sector as devices grow into hitherto uncharted territory. Just think of Apple's iPod music player, Nintendo's Gameboy Advance gaming machine or Nokia's 3650 camera phone. Undoubtedly, 2003 will be the year of the smartphone and wireless personal digital assistant.

The winners and losers in this relatively new category will be determined by the strengths or weaknesses of their applications. That means software. So now Microsoft, Nokia (with Symbian) and Palm are all looking to establish themselves as the dominant providers of software for the new generation of mobile devices. There are also a number of newcomers to the market such as mobile Linux software vendor MontaVista and there is a very persistent rumor that Apple is also going to bring out a new device.

Meanwhile, at the Consumer Electronics Show in Las Vegas recently Microsoft announced its intention to produce a CDMA version of its Smartphone and Pocket PC operating systems. The move gives Microsoft the opportunity to compete in the US market. It will be looking to topple PalmSource, the number one purveyor of Personal Digital Assistant software in the US, and Symbian, the largest provider of smartphone software in Europe. The company also announced that Samsung and Hitachi will offer products based on its Pocket PC and Smartphone platforms through US carriers Sprint and Verizon.

Convergence


That's the good news for Microsoft. The bad news is that it is embroiled in a horribly messy legal wrangle with Sendo, the British handheld communicator maker, which has alleged that the software giant spilled the beans about Sendo's technology to HTC, the Taiwanese company that originally designed HP's iPaq handheld computer. HTC is also providing the British carrier Orange with the SPV smartphone. So Sendo has taken its business to Nokia and licensed the Series 60 platform, which is based on the Symbian operating system. If that were not enough, last week a story emerged that hackers in the UK may have found a way to break into the Orange SPV (which stands for Sound Pictures Video), the first commercially available phone based on Microsoft software. Microsoft quickly moved to fix the problem, and promises Orange customers a fix is in the works.

There is a lot at stake. Market research firm Analysys, predicts that Europe alone will have over 300 million smartphone users by 2007. It's also understandable why everybody is getting hot and bothered about the sector when you consider that PC prices are coming down and PDA prices are actually rising. For example, the bottom of the line Dell Dimension Desktop costs $499.99 about $100 less than the top of the range Sony Clie handheld computer and about the same price as a copy of Microsoft Office.

And herein lies the rub. Consumers distinguish computers by software type and not by manufacturer. That suits Microsoft. The cellular industry is exactly the opposite. Currently, most people have no idea of what kind of software is running on their phone. That suits Nokia, Sony Ericsson, Motorola and the other vendors. In Japan it is the cellular operators who are king. Consumers sign up for services and have no idea either who made the phone or what software they are running. This suits the likes of T-Mobile, Vodafone, and NTT DoCoMo. Now the move to second and third generations networks in Europe and the US provides an opportunity for the current status quo uprooted. So everybody is eagerly eyeing up the market and seeing it as an opportunity to become dominate.

Strategy


There is a religious battle brewing. All factions want to own the consumer. The cellular hardware vendors such as Ericsson, Matsushita (Panasonic), Motorola, Nokia, Psion, Siemens and Sony Ericsson have all invested in Symbian. These companies, normally archrivals, are collaborating preserve their position and stop the network operators from establishing a Japanese model and Microsoft from establishing a PC model.

With Nokia, Motorola and Sony Ericsson and now NTT DoCoMo (with Fujitsu) under its belt Symbian has made great strides, although many companies, it has to be said, are more interested in Nokia's reference implementation called Series 60. This features the Symbian operating systems bundled with a user interface and services such as multi-media messaging. So far, it's strongest in Europe and has yet to make much of an impression in the US or in Japan.

In fact, according to Canalys, Nokia took the European smartphone market share lead with 57 per cent in the third quarter last year, while Palm took second place with 15 percent and HP took 9 percent with the iPaq. Sony continues to gain market share because its Clie has proved to be enormously popularity.

According to David Wood, executive vice president of Symbian, the company recently saw a significant rise in the uptake of its operating system. "This is probably because both Nokia (with the 7650 and 3650) and Sony Ericsson (with the P800) have launched some stunning products in the last couple of quarters."

PalmSource is equally keen to keep Microsoft at bay and defend its 60 percent PDA market share. Sony Electronics, which makes the Clie handheld computer, as apposed to Sony Ericsson, which makes cell phones, has also decided that PalmSource was a better bet than either Symbian or Microsoft. It sunk $20 million into the company last year to get a six stake in the company. No doubt the money helped the company finance its rewrite of its software for the ARM microprocessor, which Sony is now using in its Clie PDA. Other vendors such as Acer, AlphaSmart, ARM, ATI, Fossil, Garmin, GSL, Handera, Handspring, HuneTec, Intel, Kyocera, Legend, MediaQ, Motorola, Palm, Samsung, Symbol, and Texas Instruments also license the PalmSource operating system.

"If you look at Microsoft and look at their Smartphone and Pocket PC business you will realize that they are loosing an awful lot of money," says Albert Chu, vice president of business development and wireless strategies at PalmSource. "They are trying to force feed the market with Microsoft products and perpetrate the hardware clone model that they managed establish in the PC market. Now there are few profitable PC makers left."

"Who made the real money from the PC business?" he asks. Microsoft.

"We have a different approach than Microsoft," says Chu. "We want our licensees to succeed. They succeed, and then we succeed. And we don't create a platform and tell them they have to use our reference design."

In Europe, Microsoft has launched the Orange SPV and the O2 XDA, which are both manufactured by the Taiwanese company HTC. In the US, T-Mobile has brought out the MDA and the Siemens SX56 both of which are also manufactured by HTC. That's not to say that this strategy is written in stone. Other companies are also working on Microsoft based products. Swedish vendor Neonode, for example, has a product in development that is based on the Windows CE operating system but does not run Microsoft's Smartphone software. While the product has not been launched yet it is likely that it will carry the Neonode brand.

Mobile Linux in 2003?


Meanwhile, MontaVista Software, a privately held software firm based in Sunnyvale, Calif., has developed a Linux based operating system for mobile phones. Its investors include IBM, Intel, Sony, Panasonic, Toshiba and its partners include Sun Microsystems, NEC and Texas Instruments. Without such powerful friends this company may look like just another also ran but with them it could make some serious inroads. Indeed, it indicates a need on behalf of the device manufactures for a royalty free operating system.

Scott Hedrick, product-marketing manager for MontaVista argues that many companies are being forced to pay too high a premium for cell phone operating systems.

"For that reason we charge for each development seat (kind of like the software tools business) rather than for every unit shipped," says Hedrick. Seamus McAteer, principal of Zelos Group a consulting in San Francisco agrees. "In this market the consumer is not buying an operating system," he says. "The OS should be invisible and they just want services so OS vendors are going to have a hard time charging a big premium for their software."

Some vendors such as Samsung seem unwilling to get caught up in any type of software standards war. It has products based on all the platforms.

Still, so far, we're talking about small potatoes as US 3G networks are still under construction and hardware and services are slow to make their debut in Europe. According to Canalys, smartphone shipments reached just 1.2 million Europe in the third quarter last year and the US smartphone market is only getting underway this quarter. While first generation mobile phone market share was won and lost on the strength of the hardware (particularly product design) second and third generation market share will be won and lost on the strength of applications.

2003 is set to be the year in which we see the winners emerge.

Niall McKay is a freelance journalist based in Tokyo Japan. He can be reached at www.niall.org.