Josh On Design

Every day or so I read another blog post (or ranting comments) about how BlackBerry could be rehabilitated, or how Nokia could restart Maemo and build the ultimate smartphone again. Things came to a head after Jolla announced their first phone for sale. Surely this phone with an amazing user interface will vindicate the N9?! Amazing technology plus a killer UI? Marketshare is theirs for the taking!

I’m sorry; but no. Most people don’t understand how a smartphone platform works. Simply put: there will not be any new entrants to the smartphone game. None. At all.

Obligatory disclaimer: I am a researcher at Nokia investigating non-phone things. I do not work in the phone division, nor do I know any internals of Nokia’s phone plans, or Microsoft’s after the acquisition of Nokia’s devices group is complete. I hear about new devices the same way you do: through leaks on The Verge. This essay is based on my knowledge of the smartphone market from my time at Palm/HP and general industry observations.

A few new Android manufacturers may join the game, and certainly others will drop out, but we are now in a three horse race. The gate is closed. I’m sorry to Jolla, Blackberry, the latest evolution of Maemo/Meego/Tizen, whatever OpenMoko is doing these days, and possibly even Firefox OS. No one new will join the smartphone club. It simply can’t happen anymore. You can’t make a smartphone.

There was a time when a small company, with say a few hundred million dollars, could make a quality phone with innovative features and be successful. This is when ‘successful’ was defined as making enough profit to continue making phones for another year. In other words: a sustainable business, not battling for significant marketshare. Those were the days when Palm could sell a million units and be incredibly happy. The days when BlackBerry had double digit growth and Symbian ruled the roost.

Then came 2007. It might be over-reaching to say ‘the iPhone changed everything’, but it certainly was an definitive event. The 1960s began in January of 1960, but ‘the sixties’ began when the Beatles came to America in early 1964. Their arrival was part of a much larger cultural shift that started before 1964 and certainly continued after the Beatles broke up. I would personally say the sixties ended memorial day of 1977, but that’s just my opinion.

The Beatles appearance on the Ed Sullivan show is a useful event to mark when the sixties began, even though it’s really a much fuzzier time period. Steve Jobs unveiling the iPhone in 2007 is a similarly useful historical marker. Everything changed.

Data networks

The first big change was data networks. In the old days there really wasn't a data network. Previous phones were about selling minutes and, to a lesser extend, texting. carriers didn’t really care about smartphones. They didn’t push them or restrict them. As long as you bought a lot of minutes the carriers didn’t really care what you used.

There were no app stores back then, just a catalog of horrible JavaME Tetris clones at 10 bucks a pop. I owned a string of PalmOS devices during this period. Their ‘app store’ was literally boxes of software in a store which you had to install from your computer. No different than 1980s PCs. While my Treo had access to GSM, it was merely a novelty used to sync news feeds or download email very slowly.

Around 2006 the carriers 2G and 3G data upgrades finally started to come online. Combined with a real web browser on the iPhone you could finally start doing real work with the data network. This also meant the carriers became more involved in the smartphone development process. Clearly data would be future, and they wanted to control it. Carriers request features, change specs, and pick winners.

Carrier influence means you can’t make a successful smartphone platform without having strong support from them. This is one of the things that doomed webOS. The Pre Plus launch on Verizon should have been huge for Palm. Palm spent millions on TV ads to get customers into the stores — who then walked out with a Droid. Without having strong carrier support, all the way down to reps on the floor, you can’t build a user base. To an extent Apple is the exception here, but they have their own stores and strong existing brand to leverage against carrier influence. Without that kind of strength new entrants don’t have a chance.

The cost of entry

Another barrier to entry in the smartphone market is the sheer cost of getting started. A smartphone isn’t just a piece of hardware anymore. It’s a platform. You need an operating system, cloud services, and an app store with hundreds of thousands of apps, at least. You need a big developer relations group. You need hundreds of highly trained engineers optimizing every device driver. The best webkit hackers to tune your web browser. A massive marketing team and millions in cash to dump on TV ads. You need deep supply chains with access to the best components. The cost of entry is just too high for most companies to contemplate.

To continue with webOS in 2011, I estimate HP would have had to spend at least a billion a year for three years to become a profitable platform — and that was two years ago. The cost has only gone up since then. There are very few companies with the resources. You already know their names: Apple, Samsung, Google, and Microsoft. All vertically integrated or well on their way to it. You aren’t one of these companies.

Access to hardware components

Smartphones need good hardware to be competitive. With the 6 month cycles of today’s marketplace that means you have to access to the best components in the world (Samsung), or have such control of your stack that you can optimize your software to make do with lesser hardware. Preferably both.

Apple has the spare cash to secure a supply chips and glass years in advance; you do not. If Apple has bought the best screens then your company has to make do with last years components. This compromise gets worse and worse as time goes on, making your devices fall further behind in the spec wars.

Retreat to the low end

A common solution to the component problem is targeting the low end. After all, if you can’t get the best components then maybe you could build a decent phone out of lesser parts. This does work to an extent, but it limits your market reach and opens you up to competition at the low end. You are now competing with a flood of cheap Android devices from mid-tier far-east manufacturers.

Even if you OEM hardware from one of these low-end manufacturers you are now in a race to the bottom. Your product has become a commodity unless you can differentiate with your user experience. That requires the telling potential customers about your awesome software, which requires a ton of cash. Samsung spends hundreds of millions each quarter on Galaxy S ads. This path also requires an amazing UI that will distinguish you from your peers.

A disruptive UI

Even with an paradigm shifting UI you’ve got to overcome all of the difficulties I outlined above. Most people in the wealthy world have smartphones already, so you not only have to convince someone to buy your phone, but to leave the phone they already have. Your amazing UI has to overcome the cost of change. Inertia is a powerful thing.

Most likely, however, your new platform won’t have such a drastically different interface. Smartphones are a maturing platform. A smartphone five years from now won’t feel that different than today’s iPhone. Sure, it will be faster and lighter with better components, but it will still have a touch screen with apps, buttons, and lists.

Unless you’ve figured out how to make a screen levitate with pure software you won’t be able to shake up the market. Google Glass is the closest thing I can think of to a truly disruptive interface. Adding vibration effects to scrolling menus is not.

No hope?

So does this mean we should give up? No. Innovation should continue, but we have to be realistic. No new entrant has any chance of getting more than one percent of the global market. That could still be a success, however, depending on how you define success. If success is being profitable with a few million units, then you can be a success. You will have to focus on a niche market though. Here’s a few areas that might be open to you:

Teenagers without cellphone contracts. Make a VOIP only phone. Challenge: you are now competing with the iPod Touch.

Point of Sale systems. Challenge: this is an enterprise only pitch and they have long sales cycles. You might be dead by then. They also don’t care about user experience, so your awesome UI doesn’t matter. Small to medium businesses will use apps on standard devices like iPads, so you are back to where you started.

Emerging markets: half of the world is buying their first smartphone. This is an opportunity if you can get in fast with cheap hardware, but now you compete with FirefoxOS.

Mozilla is targeting emerging markets where last generation hardware is more likely to succeed. Even so, Mozilla is working very closely with local carriers to ensure success while facing down competition from low-end Android devices. They also have the advantage of being a non-profit. Their ultimate goal is not to become a profitable phone company, but rather keeping the web open and free. This is probably not a viable option for you, and even Mozilla may be too late to follow this path.

The sad truth

Smartphones are a rapidly maturing product. Soon they will be pure commodities. Just as I wouldn’t suggest anyone build a new line of PCs or cars, smartphones are becoming a rich man’s game. Unless you start with a few billion dollars you have no hope of making a profit. Maybe you could follow CyangoenMod’s approach of building value on top of custom Android distros, but even that risks facing the wrath of Google.

Sorry folks. There's plenty of room to innovate elsewhere.