An analysis of mobile phones as software platforms says there can be only one big winner
An engineer and investor who call himself Tulip Farmer — surely not his real name — posted a provocative piece on Seeking Alpha Friday that looks at the smartphone wars as a battle to be the dominant software platform.
A platform, as Farmer defines it, is a device or service that customers buy primarily because they want the third party applications (emphasis his) that run on it.
In the two examples he offers — IBM’s (IBM) mainframe in 1960s and Microsoft’s (MSFT) MS-DOS in the early 1980s — one platform emerged with the lion’s share of the market and the others either failed or were pushed into niche markets.
“Platforms have network effects and economies of scale,” Farmer writes. “Software developers want customers so they focus their development on the platforms with the most users. Users want applications so they buy the device with the most software developers. Development is hard work and every additional device a developer needs to support is a big investment, so they try to minimize the number they develop for. Because of this effect, there is usually one big winner in a platform war, one or two much smaller survivors in niche markets, and a bunch of dead bodies.”
So who does he think will be the big winner in smartphones? He’s hedging his bets, going long on Apple (AAPL) and Google (GOOG) and short on Microsoft, Research in Motion (RIMM) and Nokia (NOK).
“The developer community today,” he writes, “is focused on iOS and Android to the exclusion of other devices and has been for most of the last two years. I know this as my day job involves interacting with hundreds of developers. Third party surveys like this one say the same thing. So the game is already over — iOS and Android have far more and better applications today than Nokia, RIM, Palm (remember them?) And developers are widening the gap every day.
“Where developers go, buyers follow. It no longer matters if RIM comes out with a better OS or a new device, because developers only have the bandwidth to support one or two platforms well, and they’ve already made the investment in iOS and Android. The only chance for survival Nokia and RIM probably have is to adopt Android or retreat into tiny niche markets. Even the king of low cost handsets Nokia has to worry, because in 5 years even low end mobile phones will have iPhone 4 level capabilities. There will be no single function simple phone market because hardware will continue down the path of Moore’s Law toward lower cost and higher function. Just like single function personal computers like Wang’s word processors disappeared when the IBM PC came out, so will mobile phones that only make calls.
You can read the rest of his piece, and further thoughts about how to capitalize on the trend, here.
[Follow Philip Elmer-DeWitt on Twitter @philiped]
