The war for the smartphone market is hotting up.
Twenty years ago, the battle of the computer operating systems raged. It was Apple (NASDAQ: AAPL.US) against Microsoft (NASDAQ: MSFT.US), Macs against PCs or, as in that famous Ridley Scott advert, the forces of light against the empire of evil.
Who would have known that there would only be one winner in that fight, with Windows dominating the personal computing scene for the past two decades? But now a new battle, that for the smartphone market, is emerging.
Nokia's recent launch of the Lumia smartphone, based on Microsoft's new Windows Phone 7.5 operating system (also known as Mango), means that we now have three main combatants: Apple, Google (NASDAQ: GOOG.US)/Samsung, and Microsoft/Nokia.
The smartphone market reminds me a lot of the personal computing market of twenty years ago. But the question is: will there be an outright winner that carries all before it, just as Microsoft did all those years ago?
Well, before we decide, let's look at each of the competitors in turn.
iPhones are hugely profitable for Apple, and they have been selling in unprecedented numbers. Forecasts suggest Apple will sell a total of 86 million iPhones in 2011. This compares with just 11 million phones sold in 2008, so the growth in sales is phenomenal.
But we are not just talking about volume, but also margin. For the 2010/11 period, various studies indicate Apple had a mobile market share of only 5% in terms of units sold, but pulled in more than 50% of the global profit that mobile phones generated.
As well as being a technological success, I think Apple and, in particular Steve Jobs, made the iPhone one of the great marketing successes of our generation. In terms of tasteful design, there is nothing that can beat the iPhone. It is now an object of desire -- a requisite accessory for the well-heeled business-person.
So Apple's iPhone looks like a winner? Yes, but so does Google's Android.
Google has adopted a strategy not dissimilar to Microsoft's approach to PCs twenty years ago. Whereas Apple has focused on producing a very high quality product at a substantial margin, Google has gone for the mass-market approach and made an operating system which, through the Open Handset Alliance, has been adopted by a large number of manufacturers.
The Alliance is a consortium of 84 companies, meaning that a wide range of businesses, including famous names such as Samsung and HTC, are now making Android phones.
The result is that Android has become the best-selling smartphone platform worldwide, with 190 million Android devices now in use.
Microsoft's Windows Phone
It may be four years late compared to its competitors, but I have actually been pretty impressed with Mango, the latest incarnation of Microsoft's Windows Phone operating system.
The 'Metro' interface, with its grid of large, brightly-coloured tiles is not only clean, clear and intuitive, but also attractive and appealing to use. Microsoft likes it so much, the firm is taking it to Windows 8 and the Xbox 360, too.
Currently, in terms of popularity, Windows Phone lags miles behind Apple and Google. But by using an interface that millions of future Windows 8 owners will be used to, plus building an alliance with Nokia, Microsoft hopes to make serious inroads in the smartphone market.
Microsoft is currently way behind, and I think it is going to be a long time before it can challenge the top two. But the company does have an impressive ability to catch up. For example, Windows 3.1 was launched some eight years after the first Apple Mac, and Internet Explorer came out after the now long-forgotten Netscape Navigator.
It's hard to pick a winner
So who will win the Game of Phones? Well, I currently find it very hard to pick a clear-cut winner. So far these three operating systems seem to be co-existing pretty well together, and I suspect that coexistence will continue for a while yet.
But we have a long way to go in this war, and I think we may have as many twists and turns to come as a George R. R. Martin novel.
Which of these companies should you put your hard-earned pennies into? Well, there are solid cases you could put forward for investing in Apple, Google or Microsoft -- and even investing in all three! -- but let me throw a bit of a curve ball.
A company I haven't mentioned yet is Research in Motion (NASDAQ: RIMM.US), maker of the BlackBerry, and widely seen as a loser in the smartphone wars. But I feel the pessimism has been overdone. The company is continuing to innovate and fight its corner, with the launch of touch-screen BlackBerries and the PlayBook.
At its current price of $18.83, RIM stands at a trailing P/E ratio of just 3.3, and it trades at book value. For a technology company, that is unbelievably cheap -- the market at the moment is pricing in tech Armageddon.
In my view, for those with an appetite for risk, RIM may now also be worth looking at, as a contrarian and deep-value play.
More from Prabhat Sakya:
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