The Smartphone Wars: Dinosaurs mating?

Just when you thought the smartphone industry couldn’t get any more soap-operatic, everybody’s favorite pair of aging drama queens – Microsoft and Nokia – may be at it again. There’s a rumor, from a gossip with a good track record, that Microsoft intends to buy Nokia’s Smartphone division.

Inexplicably, there are even some people writing about the rumor who think this might even be a good idea. I mean, a good idea for Microsoft. It probably really would be a good idea for Nokia – they’d get shut of their idiotic alliance with Redmond and unload a crappy, chronically underperforming division for a pile of cash (the rumormonger says $19 billion).

But for Microsoft? Nokia’s brand strength was probably the only thing keeping Windows-phone share as high as 5.2%. It hasn’t been Microsoft’s software doing it, that’s for sure. Botched upgrades and a pathetically weak app ecosystem have only been the most obvious problems.

If Microsoft bought Nokia’s smartphone division, they’d mismanage it into smoking rubble within two years. “But wait, Eric…” I hear you cry, “they haven’t done too badly with the X-Box!” Quite right they haven’t – but that’s because Microsoft runs that division as a cash generator, mostly hands off.

Smartphones, on the other hand, are strategic. That means that if Microsoft buys itself a smartphone division, Steve Ballmer’s going to poke his prong into it. Repeatedly. To, um, what’s the B-school jargon? “Maximize the synergies”. They might even be treated to more demented-monkey ranting. Two years. Smoking rubble.

On a different subject, what are we to make of the latest comScore figures? I have to say I don’t know. Android has fallen off the roughly 2%-per-month rate of share increase it had been sustaining for 18 months. Even at the lower rate, though, it’s still probably going to surpass 50% U.S. market share within a month or two – actually, some of the more excitable market-research outfits think it’s already there.

Apple fans would like the reason for the slowdown to be Apple, but there hasn’t been any corresponding improvement in Apple’s relative position. Both Android and Apple now seem to be tracking overall smartphone market growth pretty closely. Neither the iPhone 4S nor Android 4.0 shows any sign of being a game-changer.

The most likely possibility is that the U.S. smartphone market has reached a sort of initial saturation point – that while there’s still growth in the offing, the first frantic rush to smartphones has finally spent itself.

I rate this only “likely” because the holiday sales figures could still shock everybody. Apple had a flat month in September which might have been people deferring purchases until they could get a 4S; it’s just possible that the larger Android wobble was their considerably larger prospective-buyer pool holding out for Ice Cream Sandwich – currently only available on a Verizon phone.

The saturation theory has a near-term consequence we can watch for: decreasing consumer willingness to pay premium prices for high-end smartphones. Watch for the more market-savvy vendors to start emphasizing value pricing and low-end to midline products more in 1Q2012.

The purchase-deferral theory has a more obvious near-term consequence we can watch for, too; huge Christmas-morning sales for Verizon. Andy Rubin was on G+ talking up Christmas activations recently, which suggests that Google thinks it’s going to have a good story for its next quarterlies.

Meanwhile, the non-sucky low-cost Android tablets that I was predicting six months ago are beginning to trickle in now, two months later than I was expecting but hey, prediction is hard. There’s a fair amount of buzz about Velocity Micro’s T507, an Android 4.0 tablet with a 7-inch display for $150.

Significantly, this is less than an iPad. The vendors may be getting a clue that to complete with Apple they have to offer something as good for less money. “Premium” pricing simply will not work in that market, not for anyone but Apple now and probably not even for Apple in the longer-term future.

I don’t want a T507. But the specs on it hint that we’re only one product-development cycle – three or four months – from something I and a whole lot of other people will want. If the iPad’s product manager isn’t starting to get nervous about this, he should be fired and replaced with somebody with enough sense to be worried.

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