From where I sit, it seems that the "rule of three" may not hold true in the fierce battle being waged for dominance in the still nascent mobile OS market. Based on their 2002 book, The Rule of Three: Surviving & Thriving in Competitive Markets, Jagdish Sheth and Rajendra Sisodiain postulate that all major markets evolve and shift (like a living organism), and that markets tend to behave in a highly predictable fashion.
There are many modern examples that exemplify their construct—for instance, the soft-drink and automotive markets. Three companies, Coca-Cola, PepsiCo and the Dr Pepper Snapple Group, now own approximately 90% of U.S. sales as volume-driven, full-line "generalists". Others, such as Red Bull and Jones Soda, are margin-driven "specialists" that concentrate on specific products or customer segments.
The other classic example is the U.S. automotive industry—surveying the current situation, the U.S. market is a crowed one. Alongside Ford, GM, and Chrysler, "transplants" such as Honda, Nissan, Toyota, and Hyundai aspire to be full-line generalists. Operating margins of the leading manufacturers do not follow the typical pattern as suggested by the Rule of Three; however, when vehicle volumes collapsed in 2008, the weakest manufacturers fell into the space known as "the ditch". While it seems as though the automotive industry has been saved from collapse by U.S. government intervention, it is highly likely that the market will become more competitive, as new entrants vie for a piece of this (currently) crowded market. As competitive market forces play out, (as they typically do), the industry will consolidate. Some full-line generalists will merge, some will reposition as specialists, and some will be forced to exit altogether. In the endgame, the Rule of Three says that three full-line generalists will dominate the industry. So what about the mobile OS landscape? Below, is how we see it potentially playing out:
Please note that the chart above pertains only to Smartphone OSes—this being said, the current mobile OS ecosystem as it stands today is extremely competitive and fluid. While looking out three years ahead can be fun, it is difficult to prognosticate this space, as recent events such as Microsoft's partnership with Nokia, RIM's acquisition of QNX, or HP swallowing Palm can profoundly change the course of events. Regardless, barring any unexpected acquisition moving forward, the below is a potential future positioning that we believe is likely. One important take away is the erosion of operating margins—most of the participants will see their margins ebb over the next three years (make sure to note the change in the Y axis), with operational efficiencies in the supply chain and channel strategies increasing in importance and becoming critical to maintaining profitability.
Looking ahead, we see Microsoft benefitting at Nokia's expense, and making market share gains, as "dumbphones" continue to be replaced with Smartphones. As is widely anticipated, lower cost "low-end" Smartphones are also highly likely to emerge within the next 12 months, and will account for portion of the margin erosion that we are anticipating. Another important point that needs to be stressed is that only companies that sell a mobile OS are mentioned in the above chart. Samsung is in "the ditch", as we see its BADA OS as a non-starter—however, Samsung (and Motorola) will be key to Google’s achieving the "full-line generalist" position that we anticipate in the next 36 months. We see HP and Apple making modest market share gains moving forward, and RIM holding its own. Another interesting element of this market's evolution to monitor moving forward will be the ability to cater to the needs of both consumers and business users with the same device—personally, I see this as becoming increasingly difficult to achieve.
This chart will be interesting to look back on in three years’ time—as always, I welcome your feedback!