What will be the iPhone successor? It could be the third-generation iPhone, as Apple has successfully held on to the crown for two generations and, in 2008, the iPhone was the only product that had folks lined up around the block. However, RIM, Samsung, LG, HTC, Palm and Google all made credible runs at this product and all are expected to improve their respective offerings in 2009 along with Apple. And the phone-buying public has never been the most loyal.
Interestingly, smartphone sales growth has been declining overall, in the face of a near-vertical ramp for netbooks, suggesting that the market may choose a more traditional voice-only product coupled with a netbook as the sustaining solution. I think this has more to do with the cost and packaging of the data services than a particular weakness in the device class at the moment. But in a depression, cost rules and if the services are priced too high, they could be a category killer.
You'll notice a common thread, though, and that is that each of these companies is doing an online application store (even the very successful Kindle e-Book uses this model), and this may be the bigger trend worth watching. Also, WiMax may address the high cost of services hurting this product segment and become a king maker if it rolls out as planned over the next 24 months.
In terms of mind share, this is Apple's market to lose. The iPhone has solidly captured the interest and excitement in this market. Apple has responded to market conditions and, instead of bringing out an iPod Nano (which would have been difficult to differentiate from a normal feature phone due to size limitations), was expected to bring out a $99 iPhone shortly after the end of the year in Wal-Mart and AT&T stores. Rumors are difficult with Apple because the firm does an excellent job of killing leaks but refurbished 3G iPhones did arrive at the $99 price point by year end.
This validated the price point and, once established, it will be hard for the consumer to give it up, which is what makes selling refurbished current-generation products broadly somewhat risky. The 3rd Generation iPhone will likely address a couple of clear shortcomings. The battery simply doesn't last as long as the service contract does and needs to either go to something like Boston Power's product (four times the service life) or be removable. I'd bet on the former. In addition, it is losing a lot of the market because of the screen keyboard. The trick will be addressing that problem with a variant, accessory or new offering without growing the size of the device significantly. Turn-by-turn navigation and a more powerful processor that could do more Web stuff (Flash) is a given.
So we can probably expect a broader line of more powerful phones, though a Nano is becoming less likely, that begin at $100 and include technology that addresses the keyboard and battery life shortcomings of the device coupled with a visual treatment that makes the phone stand out from its predecessors. And maybe a customization option; with that phone back they can do colors now.
The Real Android 1.0 Phone
The HTC G1 is really a good beta phone. It was rushed to market to make the fourth quarter and did surprisingly well but, had it not been for timing, it would have never existed. In 2009 we will see the true first generation of Android phones and, if a competitor takes the crown from Apple, it will likely be Google and a partner. This is because the Android is already very close to the Apple in terms of capability, but it is generally better when it comes to online content. This generation will initially be more exclusive than the aging iPhone is. The market likes new and unique and this next generation of the Google platform will be both. For Google, there are two critical areas that it needs to close. The first is with games (though it actually has some applications the iPhone doesn't have), which now define the iPhone and haven't yet appeared in volume on the Android platform. The other is compatibility with Exchange, which the iPhone through MobileMe has, and the Android does not (the calendar in particular sucks with the Google platform and Exchange). If it can close these gaps, come out with more attractive and well-priced devices, and effectively market the result, it could take the lead. But, as Microsoft has learned, you have to depend on the hardware maker to close that last gap and they don't always step up they way you'd like.
What would happen if you formed a company around a bunch of really pissed off ex-Apple folks and they brought out a smartphone? That's what Palm is now and it just got $100 million in an ugly market to make a run at the iPhone with a platform that has an application store, Apple DNA, and a reputation for being much nicer with retail and carrier partners. The Palm Pilot was one of the products that, in their day, were more popular than the iPhone. It is also interesting that Palm tried what many of us thought Apple should have done and separated the hardware from the operating system. That experiment failed and points to the fact that when you separate a company, often one side or the other comes up short on skills and the end result isn't what you intended.
Initial buzz on Nova and the new Palm hardware is strong and the brand still has legs. Certainly, the folks at Palm have fire in their bellies to take Apple down a peg and their investors believe they can do it. We'll see, but they will be worth watching in 2009.
Too many products, too few resources. 2008 showcased a Research in Motion that was spread too thinly. The BlackBerry Bold was a solid hit, but the Storm had some issues. RIM is at a point where it needs to merge with someone larger to get the scale it needs to compete in this space. There are a lot of big players in phones and while RIM tried to step up it was obvious it simply didn't have the resources to compete as broadly as it had anticipated. RIM also has an application store but it lags behind Google and Apple in compelling applications, and developers are being spread very thinly at the moment. I think RIM is at risk in 2009 because it simply doesn't have the scale to step up to the market that it wants to define. I think the big story for RIM is a merger or some other arrangement.
Windows Mobile 7
This platform has started to slip out like Vista did; it has me and the supporting OEMs very nervous since it's now due in the 2nd half of 2009. The end result is that many are hedging with Android and ground lost will not be easily regained. This platform is a showcase for the good and bad that can result from a merger in that it will incorporate things from the Danger acquisition that Microsoft made some time back. The promise is a catch-up product and an application store of its own but Microsoft has fallen rather far behind Apple's and Google's performance in this area, and Google has a lot of momentum going into 2009.
Fortunately, both the nature of the market, which tends to be a second half market, and the economy are working for Microsoft because selling much of anything in the first half of 2009 will be very difficult anyway. But, for Microsoft, this is a do or die release. If it disappoints, it will likely not be around for another match with this platform and will instead have to compete with MIDs and netbooks as those products encroach on the smartphone space. It gets its own application store but really late and will be chasing developers at a disadvantage for once. It is big enough, if it focuses, to catch up but it will need to hit one out of the park to catch up.
Application Store the Bigger Story
I think the bigger story is the concept of the application store and the fact that it could migrate over to the PC with Google, Phoenix Technology, Apple or even Microsoft. Virtually every one of these smartphone vendors will be putting one up and I think it will be the applications that define the platform. For once, Apple has the significant lead here, with Google as the closest contender. There is likely room for two or three major players with the battle initially being for that second or third spot. But this could do interesting things for the software market and potentially provide a way to assure the PC platform quality if the PC OEMs started picking up this concept and saw the opportunity for additional profit (from sales margins) and deeper customer loyalty that would result. I think we are on the cusp of a major change and, beyond the triviality of who has the next hot product, it is the application store model that will define it.