Future of Nokia Smartphones, Will the iPhone Continue to Dominate?

Earlier today, someone I know asked me this: “What do you think of future Nokia smart phones? Do you think they will stand a chance? Also what about Apple’s iPhone? Do you think the future competition is going to affect their dominance in this space?”

Below is my take on the subject. I thought that I would share and get some feedback (feel free to comment):

Nokia has a tough fight ahead. They have been able to retain the top spot in terms of unit shipped because they lead in emerging countries. I wonder if their margins are getting thinner… Their main competitors for 2008 are Samsung and Sony Ericsson. Both companies have come up with great phones in early 2008. Motorola is going to fade away, unless they come up with a “RAZR-like” success (not by endlessly replicating the RAZR!), which is unlikely, given that the company is, in my opinion, ridden with internal politics and red tape. If you look closely, you will see that there was little evolution on the software side for everyone in this list. All the players above are hardcore *hardware* companies. Now, both Sony Ericsson and Samsung are using Windows Mobile – smart move, because they can’t pull this one off themselves. How long can Nokia resist? Let’s face it, Symbian is under a tremendous pressure from Apple, Microsoft and BlackBerry. (Let’s see what happens with Nokia’s acquisition of Trolltech)

On the contrary, Apple has managed to innovate on both fronts: hardware and (most importantly,) software. The latter will make their continued success possible and probable. I’m convinced that Apple will create an iPhone “nano” (at some point), a cheaper, smaller and simpler version for those who don’t need all the Smartphone functions, but want a cool phone at a lower price. At this point, I don’t see any evidence that the iPhone will be challenged. If you look around, you will see plenty of phones with matching or higher specifications than the iPhone, but none has software that is remotely equivalent and appealing to consumers. Even if there are issues in the iPhone, all the basic functions (dial, contacts, camera and voicemail) work very well. Also, a recent study showed that 50% of iPhone owners did not previously own a Smartphone. My personal guess is that many (or most?) owners don’t use the iPhone as a Smartphone (as predicted). Worse, 33% have a second phone, most likely a Blackberry – to get work done.

Apple is strong because they master hardware *and* software. Software is where the value really is. Just like computers, handset hardware will become a commodity and most of it will end up in one or two chips, if that’s not already the case. In the long-term Microsoft is the only clear potential challenger in the mobile OS space, and they are not closing in right now. Google’s Android is also a potential disrupting factor, but I am currently not convinced that it is a real danger to Apple in the short term, or the long term.

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