And Then There Were Three: Why Microsoft Is the Vital New Underdog in Mobile Computing

Hewlett-Packard’s surprise exit from the smartphone and tablet business yesterday means that WebOS is effectively dead. That brings Palm’s long legacy to an end and leaves just four major mobile operating systems standing: Android, iOS, BlackBerry OS, and Windows Mobile/Windows Phone 7. (Symbian would have been on this list until recently, but now that Nokia has struck an alliance with Microsoft, it too is a dead letter.)

If you look beyond just smartphones, though, and consider the major operating system families that stretch across phones, tablets, and computers, I think you can also cross BlackBerry OS off the list. Critics have dismissed RIM’s PlayBook tablet using terms like “useless,” “unfinished,” and “train wreck,” and RIM has never tried to build a laptop or PC. It is a business smartphone company, and that’s that. So there are really only three companies whose ambitions encompass all of the modern device types in consumer computing (smartphones, tablets, and laptops), and their names are Google, Apple, and Microsoft.

It’s a strange feeling, but for the first time in my life, I find myself rooting for Microsoft. The Redmond, WA, giant is in no danger of losing its commanding share of the market for desktop and laptop operating systems—it’s still somewhere between 75 and 90 percent. But in the mobile OS world, it has a fragile 9 percent share. I’m hoping that number goes up, at least a bit. As much as I admire Google and Apple as innovation factories, I think mobile consumers will be better off if they have a strong third option. In fact, I don’t think the mobile computing market will be healthy and stable until they do.

There’s a concept in economics called the Rule of Three. It’s the tendency observed across many types of markets for customers to clump around three generalists—that is, companies competing to sell a full line of products. Think of United, America, and Delta; Carnival, Royal Caribbean, and Norwegian; or, in the old days, ABC, NBC, and CBS, or Ford, Chrysler, and GM. Such markets tend to function best when no single player controls more than 40 percent or less than 10 percent of the market—at least, that’s what marketing professors Rajendra Sisodia of Bentley College and Jaqdish Sheth of Emory University found in a study of more than 200 industries.

Together, the three leaders usually control 70 to 90 percent of a market. But if one competitor gains more than a 40 percent share, Sisodia and Sheth found, it often becomes too expensive to operate and attracts anti-monopoly scrutiny. If it falls below 10 percent, it risks becoming a niche player, forced to spend its energy fending off other small specialists.

Google’s announcement earlier this week that it’s buying Motorola Mobility makes it clearer than ever that mobile computing is evolving into a classic Rule of Three market, where the three full-line generalists will control both the devices consumers are offered and the operating-system software running on them. Okay, Google claims it’s going to operate Motorola as a separate company, but who really believes that Larry Page won’t have a direct say in … Next Page »

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