The first quarter global smartphone stats are in and it isn’t even close.  With the market growing more than 40%+, Samsung controls 29% of the market and Apple 24%.  The next largest, Nokia came in 60-70% below the leaders at 8%, followed by RIMM at 7% and HTC at 5%, leaving the scraps (28%) to Sony, Motorola, LG, ZTE.  They've all already lost on the scale front; they need to change the playing field. 

While this spread sounds large and improbable, it is not without historical precedent.  In 1914, just 6 years after its introduction the Ford Model T commanded 48% market share.  Even by 1923 the car still had 40% market share.  2 years later the price stood at $260, which was 30% of the original model in 1908, and less than 10% what the average car cost in 1908; sounds awfully similar to Moore’s law and the pricing of computer/phone devices over the past 30 years.  Also, a read on the Model T's technological and design principles sounds a lot like pages taken out of the book of Apple.  Or is it the other way around?

Another similarity was Ford’s insistence on the use of black beginning in 1914.  Over the life of the car 30 different variations of black were used!  The color limitation was a key ingredient in the low cost as prior to 1914, the company used blue, green, red and grey.  Still 30 variations of black (just like Apple’s choice of white and black only) is impressive and is eerily similar to Dutch Master Frans Hals’ use of 27 variations of Black, so inspirational to Van Gogh.  Who says we can’t learn from history.  

Ford’s commanding lead continued through 1925 even as competitors introduced many new features, designs and colors.  Throughout, Ford was the price leader, but when the end came for that strategy it was swift. Within 3 years the company had completely changed its product philosophy introducing the Model A (with 4 colors and no black) and running up staggering losses in 1927-28 in the process.  But the company saw market share rebound from 30% to 45% in the process; something that might have been maintained for a while had not the depression hit. 

The parallels between the smartphone and automobile seem striking.  The networks are the roads.  The pricing plans are the gasoline.  Cars were the essential component for economic advancement in the first half of the 20th century, just as smartphones are the key for economic development in the first half of the 21st century.

So what are the laggards to do to make it an even race?  We don’t think Nokia’s strategy of coming out with a different color will matter.  Nor do we think that more features will matter.  Nor do we think it will be about price/cost.  So the only answer lies in context; something we have raised in the past on the outlook for the carriers.  More to come on how context can be applied to devices.  Hint, I said devices, not smartphones.  We'll also explore what sets Samsung and Apple apart from the rest of the pack.

I love talking to my smartphone and got a lot of grief for doing so from my friends last summer while on vacation at the shore.  “There’s Michael talking crazy, again,” as I was talking TO my phone, not through it.  “Let’s ask Michael to ‘look’ that up! Haha.”  And then Siri came along and I felt vindicated and simultaneously awed.  The latter by Apple’s (AAPL, OCF = 6.9x) marketing and packaging prowess; seemingly they had trumped Google/Android (GOOG, OCF = 9.6x) yet again.  Or had they?   What at first appeared to be a marketing coup may become Tim Cook’s Waterloo and sound a discordant note for Nuance (NUAN, OCF = 31x).  At its peak in early February NUAN hit a high of 42x OCF, even as Apple stood at 8.2x.

The problem for Apple and Nuance in the short term is that the former is doubling down on its Siri bet with a brand new round of ads by well-known actors, such as Samuel L. Jackson and Zooey Deschanel.  Advertising pundits noted this radical departure for a company that historically shunned celebrities.  Furthermore, with two (NY and LA) class action suits against it and financial pundits weighing in on the potential consumer backlash Apple could have a major Siri migraine in the second half.  Could it be as big as Volvo’s advertising debacle 20 years ago; a proverbial worm in the apple?  Time will tell.

The real problem isn’t with Apple, the phone or Siri and its technology DNA, rather the problem lies with bandwidth and performance of the wireless networks.  Those debating whether Siri is a bandwidth hog are missing the point.  Wireless is a shared spectrum.  The more people who are on the same spectrum band, the less bandwidth for each user and the higher the amount of noise.  Both are bad for applications like Siri and Android’s voice recognition since they talk with processors in the cloud (or WAN).  Delays and missed packets have a serious impact on comprehension, translation and overall responsiveness.  Being a frequent user of Google’s voice-rec which has been around since August, 2010, I know when to count on voice-rec by looking at the wifi/3G/2G indicator and the number of bars.  But do others know this and will the focus on Siri's performance shift to the network?  Time will tell.

The argument that people know voice-rec is new and still in beta probably won’t cut it either.  I am puzzled why major Apple fanboys don’t perceive it as a problem, not even making it on this list of 5 critical product issues for the company to address.  But maybe that’s why companies like Apple are successful; they push the envelope.  In the 1990s I said to the WAN guys (Sprint, et al) that they would have the advantage over the baby bells because the “cloud” or core was more important than the edge.  The real answer, which Apple fully understands, is that the two go hand in hand.  For Sprint (S, OCF = 3.2x) there were too many variables they couldn’t control, so they never rolled out voice recognition on wired networks.  They probably should have taken the chance.  Who knows, the “pin-drop” company could have been a whole lot better off! 

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