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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Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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  • Mark Jonson

    Spot on, Mr. Roush. I’ve been warning people of the dangers of the long-forming Apple-Google duopoly since at least 2009. But most of what I’ve said has fallen to deaf ears as Google takes control of 40+% of the smartphone market and I continue to see consumers drop $500 or more for an oversized iPod Touch. Microsoft has been turning out some great products, especially lately. I can’t help but hope that things get better for them, or we’re all doomed.

  • The Rule Of Three may also be playing itself out in mobile network providers. Assuming the AT&T acquisition of Tmobile goes as planned we’ll be left with AT&T, Verizon and Sprint. And one could argue that Sprint is in a similarly precarious position as Microsoft.

    • Timmy

      The rule of three also exists in the dedicated video game market with Xbox One (doing well), PS4 (not sure, but selling), Nintendo Wii U (difficult time selling except loyal Nintendo gamers). One player may do worst in one market, but in another, they are the superstars. Apple is not in the dedicated video game market since you have to measure dedicated game consoles for their buttons and depth of experience. Each generation, the rule of three companies may change according to the innovation they contribute, e.g. Wii in 2006 became popular overnight and became #1 due to motion control. Sega was the last to drop out like Blackberry in the mobile ecosystem.

  • sharpeye

    “We see a number of major vendors very seriously considering Windows Mobile as a core platform and therefore we are following their lead”

    I think it should read “Windows Phone” instead of “Windows Mobile”.

  • APai

    I just see them as dogs. not underdogs. there’s a reason people have dissed microsoft – its because of the poor experience. the vendors / phone makers dont like them, the users dont like them. the only people who bought recent windows phones were nokia fans who liked nokia, more than windows phone. it’s no wonder that the percentage of phone has dropped (even though number of devices have increased, thanks in part to cheap nokia 520). I’d like to see anyone other than microsoft in the mobile territory. as a hegemony that wrested and beat people into submission with their sub standard OS – windows phone should die. let someone more competent step up – ubuntu will do, or firefox, or sailfish. we dont need no stinking microsoft pushing us into monopolies.