When it comes to the ongoing war for mobile domination, there are four major companies investors should pay attention to: Apple (AAPL 0.51%), Google (GOOGL 1.42%), Microsoft (MSFT 0.46%), and Samsung (NASDAQOTH: SSNLF).
All four companies have seen varying degrees of success, but all four have their own unique weaknesses. Investors considering the space should be aware of the challenges facing each company.
Apple wants to be a luxury brand, but iOS is a platform
In response to his tech's limited market share, Apple co-founder Steve Jobs once compared the company to a luxury car-maker:
"Apple's market share is bigger than BMW's or Mercedes's or Porsche's in the automotive market. What's wrong with being BMW or Mercedes?"
Unfortunately for Jobs, his comparison is a bit disingenuous, and it serves to highlight Apple's weakness: Although the company wants to keep its image as a luxury brand, it competes in an industry where market share matters.
If I go out and purchase a BMW, it has no effect on the value of any other BMW on the road. But if I buy an iPhone, it has a real (albeit small) positive effect on the value of every other iPhone. The more iPhones there are in existence, the more attractive Apple's platform is, mainly to developers, but also to accessory-makers and other budding markets (car integration, wearable computing). That's because the iPhone's success hinges on its viability as a platform, a concept that's not applicable in cars.
Although Apple has maintained its large market share in the U.S., it has not fared well in emerging markets. Worldwide, Apple's market share has dropped in recent years, and now stands at just 13%. If Apple's platform becomes a true minority player, it could lose the support of developers, something that it's enjoyed for years.
Despite dominating in market share, Google's Android still lags in developer support
But for now, Apple need not worry. Despite Google's Android accounting for about 79% of the smartphones shipped worldwide, it continues to lag Apple's iOS in terms of developer support.
For example, Electronic Arts' newest hit mobile game, Plants vs Zombies 2, remains an iOS exclusive (except in China). An Android release is anticipated in the near future, but owners of Apple devices have had access to the game for almost two months.
For the most part, developers continue to favor iOS because it's easier to code for and easier to monetize. Google's Android is notoriously fragmented, with literally hundreds of different hardware configurations and dozens of different screen resolutions, not to mention the multitude of different versions of Android that are still in use: It took a year for the latest release of Android, Jelly Bean, to surpass Gingerbread (first released in Dec. 2010) in popularity. And despite all those extra users, they just aren't as willing to pay -- the average Android developer still brings in less than the average iOS developer.
Additionally, while Android's market share in the important Chinese smartphone market is soaring, Google doesn't directly benefit from all those devices since heavily modifying, or forking, Android is extremely prevalent in the Middle Kingdom. Android devices that don't run Google services don't do the search giant any favors.
Samsung has no control over its operating system
Samsung is unique on this list: It's the only company that doesn't control the mobile operating system it uses to power its phones. Nevertheless, given the billions of dollars its Galaxy handsets have brought in (the company expects to post an operating profit of over $9 billion this quarter) it deserves to be here.
Still, without an operating system of its own, Samsung is at a major disadvantage. Switching between different mobile operating systems can be a hassle -- often, it requires losing the apps and media individual consumers may have invested hundreds or even thousands of dollars in.
Although Samsung may make the best Android handsets today, that might not always be the case. At some point, rival companies like Lenovo, Motorola, or Xiaomi could offer better, cheaper Android smartphones -- and Samsung would be powerless to stop its customers from leaving.
Part of Samsung's strategy to mitigate this risk is creating new features, services, and accessories that it layers on top of Android to differentiate itself. That includes things like its eye-tracking software and gesture interfaces and the freshly unveiled Galaxy Gear, among others. Samsung is also reportedly looking to acquire numerous Silicon Valley start-ups to beef up its software and services offerings.
Samsung has partnered with Intel on a new mobile operating system, Tizen. But for now, it remains a pet project -- Samsung is still heavily tied to Google's Android.
Microsoft lacks a robust app ecosystem
In terms of market share, Microsoft's Windows Phone is in distant third place to iOS and Android. That market share forms the backbone of Windows Phone's problem: it is lacking in developer support.
Numerous major apps are missing from Microsoft's app store, including HBO Go, Instagram, and Pinterest. Not to mention any hot new apps that may be released in the future. As long as Microsoft's Windows Phone has such slim market share, it's unlikely to attract much developer support.
In turn, that means less consumer interest. Ultimately, that sort of downward spiral contributed to BlackBerry's recent decline -- and while there's no guarantee that Windows Phone will suffer a similar fate, Microsoft certainly has its hands full.
Battle of the smartphone giants
Since the iPhone's introduction in 2007, the mobile industry has taken the tech world by storm. Billions have been made, with most of the profits flowing to the aforementioned companies.
Microsoft appears to be in the worst situation, while Apple continues to dominate, but all four companies have their challenges. How they choose to tackle these problems going forward will determine their success.
