LiMo Foundation Blog

iPhone naysayers take note:  Apple just passed Nokia for handset maker profitability. Indeed, the iPhone appears not to be an ephemeral phenomenon but has turned into a juggernaut that is giving the world's only Tier 0 a run for its money.  Listen to this week's news: "Apple had $1.6 billion in operating profit in the quarter from its iPhone handset division, while Nokia had $1.1 billion in operating profit from its handset division.  The results are not entirely surprising given the disparate performances of the two companies in the quarter. Apple sold 7.4 million iPhones in the quarter and had its most profitable quarter ever, while Nokia shipped fewer handsets on a year-over-year basis, and saw its global smartphone market share decline from 41 percent to 35 percent."

Let's pause for a moment. Is the main point here that a strategy of building a differentiated device is winning out in the device maker market verses following a strategy of cost/productivity leadership?  Although Clayton Christensen argues that earning the biggest profits are at the points of proprietary integration, I believe a word of caution is warranted here.  Not everyone can pull an iPhone out of their hats, as evidenced by legions of devices deployed over the past 24 months (some belonging to Nokia) that have sought to catch at least a small wave left in the wake of Apple's revolution among mobile device investors.  This is why many established leaders in the mobile industry are moving more quickly to create ecosystems that innovate on a perceived commodity:  Open Source.  The many actors placing bets on these models - Moblin, LiMo, Maemo and Android - see community source (mind you, in the mobile world, a much different animal than the desktop world) as a vehicle to reduce mobile fragmentation by creating an open platform that still allows the OxM to differentiate in the highest layers of the stack.  In turn, this allows service providers to hedge their bets in the best of both vertical and horizontal worlds, by selectively on-boarding blockbuster handset designs while creating an innovation factory among a broad base of manufacturers. They hope to irrigate the market with great devices across terminal roadmap price points.  Vertical integration can be a winner, but horizontal integration will most certainly be a winner.