The War for OS Dominance in the Smartphone Ecosystem

The growing importance of the smartphone segment has brought operating systems (OSs) and the ecosystems being created around them to the forefront, sparking a war among different platforms for dominance over the space and making it crucial to understand the influence they have on the future of the industry, according to a new report from Pyramid Research.

Smartphone Operating Systems: Ecosystem analysis and trends shaping the future of the global smartphone market details the current state of the smartphone market segment, focusing specifically on the developments taking place in the OS arena. It outlines the major operating systems by breaking down the characteristics, business model and control over the value chain of each. The report also covers the market dynamics of the handset vendors’ role and mobile operators, as well as the role of app stores, developers and content providers in the market.

The smartphone segment has boomed to become a major growth driver of the global handset market. Sales have expanded at a stunning 47 percent CAGR between 2006 and 2010, growing from 59 million to 273 million handsets. Pyramid Research expects this growth to continue at a stunning 47 percent CAGR between 2006 and 2010, growing from 59 million to 273 million handsets.

Pyramid Research expects this growth to continue at a 29 percent CAGR to reach 982 million devices in 2015 when smartphones will account for 53 percent of sales. The smartphone segment has become a major growth driver of the global handset market, with emerging markets contributing decisively to the expansion of the segment, notes Luís Portela, Analyst at Large for Pyramid Research and author of the report.

“The OS is one of the most important differentiating factors within the smartphone segment, given its central role in the handset usability experience,” Portela says. Properly aligning certain platform characteristics – such as openness, proprietary nature and support of third-party applications – with business objectives and strategy is essential to achieving relevance to consumers and to the various players along the value chain. “Industry players are focusing on mobile data as the main revenue growth source for the future. In addition to network and service investments being made to pursue this opportunity, data services need user-friendly terminals and interfaces to engage customers,” he notes.

Several players are fueling the war for OS dominance in the smartphone ecosystem. “The fastest growing operating systems are Google’s Android and Apple’s iOS, being the second and third respectively in terms of smartphone market share in 2010,” indicates Portela. Nokia’s Symbian is the market leader, but will eventually disappear when Nokia adopts Windows Phone as its primary smartphone OS. Microsoft’s Windows Phone and RIM’s BlackBerry OS complete the list of the most important OS platforms. “The OS ecosystem war will consolidate the application opportunity in the four biggest platforms (Android, Windows Phone, iOS and BlackBerry OS),” he adds.

Following a period of decreasing handset sales in 2008-2009, the global handset industry is growing once again, propelled by the accelerating smartphone segment and by strong emerging markets demand. Pyramid Research expects global handset sales to expand at a 7% CAGR between 2010 and 2015, moving from 1.33bn to 1.86bn devices.

The stunning expansion of the smartphone segment has been driven by increasing popularity of these devices in consumer segments. This was first caused by the arrival of the iPhone and further boosted by Android-powered devices, which enabled smartphones to be offered at lower price points and is making smartphones the mass market device of choice. We expect these devices to continuing coming down the price ladder, becoming increasingly available to lower-income tiers and emerging markets, which will boost sales.

The OS is one of the most important differentiating factors within the smartphone segment, given its central role in the handset usability experience. A renewed OS approach to handset usability gave new mobile handset entrant Apple an edge over its competitors. The importance of the OS has also enabled software companies to take a prominent role in an industry so far dominated by handset vendors.