Analyst Angle: Get set for stronger OS oligopoly

With the recent HP shut-down of the WebOS and Palm divisions, it’s becoming increasingly clear that to succeed in the mobile device market, an OS needs to have significant device, developer, and customer traction. And without one, you can’t get the other two. Consider it the chicken and egg problem 2x.
This isn’t news to anyone that follows OS, platforms, or the mobile industry. But the upshot or the recent mercy-killings of Symbian,PalmOS, BlackberryOS (soon for QNX), and WebOS are actually serving to strengthen the grip of the leaders.
Developers are cautious with their limited time. They only want to develop software for platforms that will be around for a long time, and will have lots of devices and users. If they build a simple app for voice alteration, for example, they might make their investment back in the first year … but that app can keep on earning them revenue for years if the platform sticks around, or even grows in popularity. A simple tweak, or a few new features can bring around a second burst of revenue. So why would they focus their limited time on building for OS platforms that only have a short lifespan to go (BlackberryOS, Symbian)? Or limited devices (Windows Phone). This is why iOS and Android ecosystems rule the day.
But there’s more. Developers are also investing their careers in the platforms for which they develop. They are learning the skills to code for that platform. The business models around that platform. They are learning to work with the handsets and OEMs that make the devices for that platform. For them, choosing to build for a platform is a big investment, committment, and risk. It’s a marriage, and they want to be sure it lasts.
This makes the mobile OS business a “natural monopoly” or a sector subject to “network effects.” The OSes that are winning are likely to remain winning for the foreseeable future. But the main point today is that these Network Effects are bound to be strengthened by recent OS closures. Now, developers are EVEN MORE acutely aware of the risks of choosing weak or nascent OS platforms. Some have been burned by working on Symbian, and WebOS. They won’t take that risk again. They will be less likely to want to experiment with any new entrants. Developers will choose to develop native apps for fewer platforms, they will port to fewer other platforms, and the current winners will begin to be able to leverage that market power.
These past 5 years, developers have found a new level of celebrity in the industry. Every carrier, OS camp, and manufacturer has launched a developer program. Each has parties and contents and financial rewards for luring developers. Each builds SDKs as well as they can, with support and documentation. I don’t think we should expect the red carpet treatment to continue with quite the same fervor, now that developers are more “locked into” the current dominant OSes. It’ll be like eBay once it dominated the auction space. Most sellers and buyers hated eBay. eBay didn’t police fraud well, didn’t resolve problems, steadily rose fees, raised fees for bold text … and it did so because it was the beneficiary of network effects, and reduced threat of seller exit. Even if an OS provider lived by “don’t be evil,” there are varying degrees of non-evil. Network effects will reduce the need to be “very nice” down to just “not evil.”
Perhaps the one thing that can keep the OS leaders honest is the ongoing progress of HTML5. If HTML5 becomes a widely used and highly functional mobile platform, as we suspect it will, then iOS and Android will have to keep innovating, and keep their communities happy to ensure a longer-term at the top.
So, while Android and iOS are market makers for now, there is never any long-term guarantee of success. Java dominated, but BREW cast it out of many markets. Palm was at the top, displaced somewhat by Windows Mobile, then both by RIM. RIM got pummeled by iOS and Android, and these things too aren’t forever. To everything, there is a season.
Derek Kerton runs the wireless practice for the Kerton Group, a consulting firm focused on advanced telecom, and is chairman of The Telecom Council, an association for global telecom executives. Internationally recognized for his strategic insight into what’s coming in telecom, he consults for companies throughout the telecom value chain (NTT DoCoMo, SKTelecom, Disney, ESPN, Sony…) and the financial community on the telecom market issues (Credit Suisse, Merrill Lynch, Dow Jones, Morgan Stanley…). For more details, visit www.kertongroup.com..