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The Battle for Control of the Standard Operating System for Phones and PDAs

Posted on: Thursday, 22 April 2004, 06:00 CDT

Most people would like their mobiles to have more and better features: email, an appointments calendar, better games and simple synchronisation with their desktop PCs are high on the wish list. For many business users, you can also add compatibility with Microsoft Office applications, as well as connecting to office intranets. It is no surprise, then, that the mobile industry is adding such features to smart phones and PDAs (personal digital assistants). But with the arrival of such devices has come a fierce battle over the operating system that organises applications on the phone.

The two main protagonists are Symbian, originally spun off from Psion, and Microsoft, with the Symbian OS and Windows Mobile OS respectively. The alternatives include Palm OS from PalmSource, formerly the software side of Palm, as well as embedded Linux, Java and a variety of proprietary offerings.

According to Arc Group research, Symbian is well out in front. Backed by Nokia and most other leading mobile manufacturers, it has a 64% market share, followed by Microsoft with 15% and Palm with 14%. But it is early days: smart phones/PDAs with mobile operating systems only accounted for 2% of the phones sold last year, with 8.6m sales worldwide, according to the research company, Gartner. But it expects that figure to double this year.

Nokia, the world's leading mobile phone manufacturer and majority shareholder in Symbian, says that at the moment, market share is irrelevant. "At this stage, we don't take much notice. Look what happened to Apple after it did so well in the early days of computing. We are not celebrating yet, and we don't want a monopoly, either," says Antii Vasara, Nokia's vice president for technology marketing and sales.

His caution is echoed by many who say that Microsoft is increasingly focused on the mobile arena. The latest version of its email server software for businesses, Microsoft Exchange 2003, is designed with mobile collaboration in mind. "We see Microsoft poised to bring mobile services to IT departments and more of them are saying they are seriously considering it and want easy integration to Office applications," says Dale Vile, service director of Quocirca, a European research company. "Microsoft has the relationships to make that happen."

Like many analysts, Vile believes Symbian is gaining traction with consumers and will find it harder to challenge Microsoft's traditional relationship with large firms' IT departments.

Microsoft also believes that businesses will be the first to use smart phones in large numbers. "Look at the history of the PC: it was business that led the consumer market," says Duncan Ledwith, head of Windows Mobile. "We don't want a dogfight, we just want to see the market grow." Last November, Microsoft set a headline- grabbing target to sell 100m devices running Windows by 2007.

Microsoft may also be heartened to see that Sony and Ericsson are urging smaller shareholders to reduce Nokia's ability to gain a 63% holding in Symbian as a result of the recent exit of Psion. However, the Windows scene is not short of conflict. Microsoft remains in a legal tangle with tiny UK cellphone maker Sendo, which switched from Microsoft to Symbian. Sendo is accusing Micro soft of a "secret plan" to plunder its technical information and expertise.

And while Nokia is increasingly seen as the dominating force behind Symbian, Nokia disagrees. "Being a majority shareholder doesn't mean you run the company," says Vasara.

A lot depends on whether the mobile phone business remains markedly different to the PC industry, where Windows has managed to gain dominance. Some believe that because operators and manufacturers are wary of a monopoly, they are doing what they can to maintain a level playing field, and many are working with several operating systems. Others just think it's a different type of business: "We don't believe it will converge. It's more like the car industry with plenty of customer choice," says Michael Mace, chief competition officer at PalmSource. "Unlike PCs there is no 'killer appli cation', and people end up choosing from around 12 popular applications."

And just as in the PC industry, some see Linux as the white knight that could upset the party for the main challengers. Motorola and NTT DoCoMo, Japan's leading mobile phone operator, have invested hugely in developing Linux-based phones, and China looks increasingly set on Linux for mobiles and PCs. There are obvious savings for manufacturers who can avoid the cost of licensing their operating system from Symbian, PalmSource or Microsoft. There's also the proprietary operating system that drives the Blackberry handheld from Research in Motion, which is attractive to manufacturers because it has a proven success story in business, and has recently become available under licence.

Yet another force is the power of the operators, such as Orange and O2, with their huge brands and their desire to increase average revenue per user (Arpu) regardless of what type of phone they are using. "The operators don't see the mobile enterprise as a priority," says Patrick Bossert, telecoms strategist at Atos KPMG Consulting, "They prefer to focus on revenue from content services because the mobile business market has been incredibly hard to develop." He says continued concerns over security and technical support are the main barriers. Others point out that operators make huge margins from text messages and ringtones compared with data services.

Operators also play an important part in deciding the look and feel of the graphical user interface (GUI) that sits on top of the operating systems. The question of which GUI to use is complicated by the fact that Symbian provides such software through its subsidiary UIQ, and Nokia also licenses its own Series 60 interface. Its more recent Series 90 interface, with greater multimedia capability, is not available under licence, however.

But manufacturers are aware that sales have faltered, thanks to a mix of software bugs, technical complexity and lack of internal support in businesses. "If anything goes wrong, it's quite nightmarish to sort out with these phones," says Bossert. He believes this will lead to a rise in the use of managed services from the likes of IBM and EDS, which take away the need for in- house expertise.

Either way, such problems will not stop operators and manufacturers from delivering phones with even more features this year. At the recent 3GSM show in Cannes - visitors saw demonstrations of smart phones and PDAs with Bluetooth and Wi-Fi wireless capabilities, as well as GSM. This means users will be able to exchange data with other mobiles and laptops using Bluetooth or via the internet at Wi-Fi "hotspots" in cafes and bars.

For all their problems, smart phones and PDAs are central to the mobile industry's growth. Nobody wants people to use the same cheap, entry-level mobile for years, but to trade up to a more expensive model with more functions - and more opportunities to spend money on online content and services.

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