1985 is back – and this time it’s mobile

There’s a strange feeling of déjà vu about 2010. In a large part of the technology business it could be 1985 all over again. Once more consumers and businesses are confronted by a bewildering array of devices that seem to do much the same thing, but not quite.

In the mid-1980s it was personal computers. Magazines were filled with advertisements for machines from Apple, Amstrad, Sinclair, Apricot, IBM, Commodore, Atari and a host of forgotten names some of which could run each other’s programs, but most which couldn’t.

This year it’s “smartphones” with large screens and internet access. There are devices running operating systems from Apple, BlackBerry, Microsoft, Google, Linux, Palm and Symbian. To add to the confusion handset manufacturers hide these operating systems under their own “skins” so they look different. Then the mobile operators such as Vodafone, O2 and Orange add their own bells and whistles. It’s all getting a tad confusing.

The recent Mobile World Congress in Barcelona resembled a game of Risk with all sorts of alliances being developed in order to stop the big players from grabbing too much of the board. Everybody was having a go at Google and Apple. (Next year the one to fear will probably be Facebook. It’s only a matter of time before the world’s favourite internet destination moves into mobile.)

It’s not simply the growth in numbers of people using mobile handsets to access the internet, 450 million last year according to IDC, but the possibilities of extracting money from them that’s causing so much excitement amongst businesses. They know how difficult it can be to persuade somebody sitting in front of a computer to enter their credit card details to make a purchase.

A mobile phone can effectively act as a credit card thanks to its built-in security. So-called “micro-payments” are a real possibility. The feeling is that people will spend a few pence on something such as a game, video clip or article if it just takes a couple of clicks on their moby.

Added to this is the falling price of the technology that powers smartphones. Marvell has developed chips which could form the basis of $99 (£64) smartphones. This is reckoned to be the magic price point and it really is cheap if you consider that’s without a contract.

Already the share of the market by what IDC calls “converged mobile devices” is rising very fast, up almost 40 per cent for the last quarter of 2009. It’s a trend that seems set to continue, unless the world tips drastically back into recession.

In this rapidly growing market there are three basic types of business: handset manufacturers, network operators and software companies. But the divisions aren’t straightforward. For instance, Apple, Nokia and BlackBerry develop both hardware and software. Google has its name on the Nexus One handset and could end up running a network. And the networks also put their brand on handsets in various ways.

Behind the competition between these businesses is a wildly varied collection of business models. Two of the big hits of the Barcelona conference were phones using Google’s Android operating system and Microsoft’s Windows Mobile 7, which won’t appear on phones until later this year. The difference is Microsoft charges the manufacturer a licence fee for every device that uses its software. Google gives it away in the hope that it’ll corner the mobile search and advertising market in the way it has for so-called “fixed devices”, laptop and desktop computers. Nokia’s Symbian used on almost half the world’s smartphones is also fully open source as of February 2010, so other manufacturers can use it without charge.

So with all this free stuff, where’s anybody going to make money? “Apps” is the obvious answer. Every handset manufacturer, network and operating system developer is in some way trying to copy Apple’s success. The variations are in how much control is exerted over the apps by the owners of the stores.

Again, there’s a feeling of going back to the early days of PC operating systems. Then, as now, Apple exerted absolute control over the software that could be run on its devices. That was one of the reasons its computers were less prone to problems than, say, those running one of Microsoft’s operating systems which left it up to the user to decide what to run on their PC.

Apple’s continued its old strategy with a rigorous if sometimes arbitrary approval process for its App Store and anything designed to run on an iPhone, iPod Touch or the forthcoming iPad. In contrast, all a software developer has to do to sell applications through Google is to register and upload to the Android Market.

It remains to be seen which model is most effective. Certainly the hit handset of Barcelona was the HTC Desire which runs Android and will be available in the UK next month. In price terms it’s going to be on a par with the iPhone and the smart money’s on Apple making an announcement in June about one or more new models.

The question is whether that will be a smaller, cheaper “Nano” iPhone, following the same sort of marketing strategy as the iPod where Apple started at the top of the market in terms of price and gradually introduced a series of lower-priced devices. If it does, that’ll put it into direct competition with Google which, because it gives Android away free, is more obviously suited to cheaper smartphones. And, of course, Nokia’s Symbian is still the biggest player in the smartphone market and Microsoft can’t be written off.

For the network operators this is very much a two-edged sword. There will be more users possibly paying higher subscriptions, but they’ll be consuming a great deal more data. It’s no secret that there was a drastic underestimation of iPhone use before it launched and now this is putting a real strain on the networks. Customers are going to be extremely disgruntled if their smartphones slow to snail’s pace through lack of capacity.

The networks will have to be upgraded even though the work won’t necessarily provide increased income for operators. Again, the next couple of years are really going to test their business models.

Three, for instance, appears to have benefited from offering Skype on its handsets. The company claims it has 40 per cent of the UK mobile broadband market. Making Skype readily available, however, wipes out the revenue from overseas calls.

That, in microcosm, is the challenge facing network operators. How do they attract and retain subscribers without overloading their systems or throwing away the profitable parts of their business.

Over the next few days we’ll look at what this means for individual consumers and business users including some hints if you’ve decided to buy a smartphone and what new services are going to grab the public imagination.

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